Ipsofactoj.com: International Cases [2001] Part 3 Case 5 [CAEW]


COURT OF APPEAL, ENGLAND & WALES

Coram

Babb

- vs -

Merrett

LORD JUSTICE ALDOUS

LORD JUSTICE MAY

MR JUSTICE WILSON

15 FEBRUARY 2001


Judgment

May LJ

INTRODUCTION

  1. This is an appeal by the defendant, John Babb, against the decision of H.H. Judge Overend at Truro County Court on 9th November 1999. Mr. Babb is a surveyor and valuer who, on 1st June 1992, made and signed a Mortgage Valuation Report for Bradford & Bingley Building Society of a property at 18 Trelawney Road, Falmouth in Cornwall in anticipation of a purchase of that property, subject to a mortgage from the building society, by the claimant, Miss Merrett, and her mother, Mrs. Scheppel. The judge held that the Mortgage Valuation Report had failed sufficiently to notice and report on settlement cracks between an original building and a later extension and that this was negligent. There is no appeal against that finding. The judge awarded Miss Merrett damages of £14,500 plus an amount for interest. £14,500 was the difference in value between the property as it was described in the Valuation Report and its value as it should have been described.

  2. There are two grounds of appeal.

    • First, it is contended on behalf of Mr. Babb that, contrary to the judge’s finding, he owed the claimant no duty of care.

    • Second, it is contended that, if Mr. Babb did owe a duty of care, the judge should only have awarded Miss Merrett half the amount of damages and interest because she only had a half interest in the property which she had purchased jointly with her mother. Her mother was not a party to the proceedings and there was no proper basis in law for awarding the full amount of damages.

    THE FACTS

  3. Mr. Babb is a professionally qualified surveyor and valuer. In June 1992, he was employed by, not a principal of, a firm of surveyors and valuers, Clive Walker Associates. The firm had about twenty branch offices, including one at 19 Mayflower Street, Plymouth, which Mr. Babb ran as a salaried employee.

  4. On 1st June 1992, the Plymouth branch of Clive Walker Associates received instructions from the building society asking them to inspect the property at 18 Trelawney Road and to prepare a report, using valuation forms which were attached. They were instructed to return these to a branch of the building society in Malvern, Worcestershire. The instruction form stated that the building society was considering an application for a mortgage on the property from Miss Merrett and her mother, who were named as applicants. The form stated a mortgage valuation fee of £70. The purchase price was given as £47,500. The mortgage required was £17,500 for a 25 year term.

  5. Mr. Babb inspected the property on the same day. He prepared a Mortgage Valuation Report dated 1st June 1992 which valued it in its present condition at £47,500. This gave details of the property and listed a number of essential repairs. Parts of the typed body of the report are expressed in the first person plural, that is, for example, "We would also comment ...." The report contained on its first page a certificate in the following terms:

    I certify that I am not disqualified under Section 13 of the Building Societies Act 1986 from making this report.

    Mr. Babb signed this certificate, giving his name and professional qualifications, at the foot of the first page on the left. The date was then typed approximately in the centre of the page. To the right of this was the name and address of the firm, Clive Walker Associates with the Plymouth address. A continuation page was on the writing paper of the firm with the Plymouth address. This was signed by Mr. Babb, again giving his professional qualifications, with the name of the firm typed immediately beneath his typed name.

  6. Section 13 of the Building Societies Act 1986 provides:

    (1)

    It shall be the duty of every director of a building society to satisfy himself that the arrangements made for assessing the adequacy of the security for any advance to be fully secured on land which is to be made by the society are such as may reasonably be expected to ensure that –

    (c)

    each person making the assessment will have furnished to him a written report on the value of the land and any factors likely materially to affect its value made by a person who is competent to value, and is not disqualified under this section from making a report on, the land in question.

  7. This The Mortgage Valuation Report was provided by the building society to Miss Merrett and her mother in a form which omitted all references to Mr. Babb and his firm. They knew that it was a Report prepared for Bradford & Bingley Building Society by an independent valuer, but they did not know who the valuer was.

  8. Mr. Babb was employed as Branch Manager of the Plymouth office of Clive Walker Associates from 3rd February 1992 to 8th January 1993. The sole principal of the firm was Mr. C.R. Walker. On 30th August 1994, a bankruptcy order was made against Mr. Walker in the Cheltenham County Court and the firm ceased business. Court. Contrary to the Professional Indemnity Regulations of the Royal Institution of Chartered Surveyors, the firm’s professional indemnity insurance was cancelled by Mr. Walker’s trustee in bankruptcy on 2nd September 1994 without run off cover. We are told that Mr. Babb is uninsured for this claim.

  9. These proceeding were started by Miss Merrett against Mr. Babb personally by a county court summons in the Truro County Court on 17th November 1997. The appeal before this court proceeded on the uncontroversial basis that the cause of action for breach of any duty which he might owe to Miss Merrett and her mother arose when they contracted to purchase the property on 23rd July 1992, and that the six year limitation period for bringing proceedings for breach of that duty was current when the proceedings were started, but had expired by the time of the hearing before the judge on 9th November 1999.

  10. The judge decided that Mr. Babb owed Miss Merrett and her mother a duty of care. He held that he was bound so to decide by the decision of the House of Lords in Smith v Eric S. Bush and Harris v Wyre Forest District Council [1990] 1 AC 831 with particular reference to the passage in the opinion of Lord Griffiths at page 865G, to which I shall refer later in this judgment. The judge considered submissions to the effect that Smith v Bush should be seen in the light of later cases in which the existence of a duty of care is said to rest on an assumption of responsibility. Put shortly, the submission was, that, in the circumstances of this case and particularly since Mr. Babb was an employee of the firm instructed by the building society, there was no assumption of responsibility by Mr. Babb personally. He knew that the Valuation Report which he prepared would be relied on by Miss Merrett and her mother. But his duty was to the firm by which he was employed. The purchasers should be taken to have relied on the firm, not on him personally. It was the firm that assumed responsibility to them. The judge held that Smith v Bush applied to the present case unmodified by subsequent decisions. He also held in the alternative that there was objectively an assumption of responsibility by Mr. Babb sufficient to sustain a duty of care.

  11. Miss Merrett and her mother bought the property jointly. On 12th October 1995, they made a Declaration of Trust whose effect was that the whole beneficial interest in the property is now held by Miss Merrett absolutely, subject to her mother’s right to live there for the rest of her life or so long as she wishes. Accordingly, apart from her right to live there, Mrs. Scheppel has no financial interest in the property. It was in these circumstances that the claim was brought by Miss Merrett alone.

  12. It was submitted to the judge that Miss Merrett, as the only claimant, could not claim in her personal capacity her mother’s share of the proceeds of a cause of action which depended on their joint ownership. She did not bring the claim as trustee. The judge held that this was at best a technical objection which could be cured, if necessary, by joining Mrs. Scheppel as a defendant. The judge considered that no useful purpose would be served by such an exercise even if it were technically required. He did not, so it seems, order Mrs. Scheppel to be joined as a party, but gave judgment in favour of Miss Merrett for the full amount of the claim, brushing aside any technical legal difficulty in the way. It is fair to say that he dealt with this point shortly at the end of a judgment in which he dealt at much greater length with the duty of care issue and the question whether there had, on the facts, been a breach. The second of these issues, which occupied a large part of the judge’s judgment, does not feature in this appeal at all.

    DUTY OF CARE - AUTHORITIES

  13. The law relating to the duty of care owed by surveyors and valuers, who make inspections and reports of residential property on the instruction of the building societies, to those who purchase the properties subject to a mortgage from the building society, is a discrete part in a wider jurisprudence. The starting point is Yianni v Edwin Evans & Sons [1982] QB 438, a first instance decision of Park J. In that case, the plaintiffs, who wished to buy a fairly modest house at a price of £15,000, applied to a building society for a mortgage. The building society engaged the defendant firm of valuers and surveyors to value the property. The mortgage application form advised the plaintiffs to obtain an independent survey, but they decided not to do so. The defendants 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. The plaintiffs accepted the offer and purchased the house. Within a year, cracks caused by subsidence were discovered which needed expensive repairs. The plaintiffs claimed damages against the defendants for negligence. The defendants admitted that they had been negligent but denied that they owed a duty of care to the plaintiffs. They said that the plaintiffs’ loss was caused by their own negligence in failing to commission an independent survey. The plaintiffs’ claim succeeded. Park J. held that the defendants knew that their valuation of the house would be passed on to the plaintiffs who, in the defendants’ reasonable contemplation, would place reliance on its correctness in making their decision to buy the house and mortgage it to the building society. There was a sufficient relationship of proximity such that in the reasonable contemplation of the defendants, carelessness on their part might be likely to cause damage to the plaintiffs. Since the plaintiffs’ failure to have an independent survey or to take other steps to discover the true condition of the house was due to their reliance on the defendants’ valuation, the allegation of contributory negligence failed. The judge followed Denning LJ’s dissenting judgment in Candler v Crane, Christmas & Co [1951] 2 KB 164; Anns v Merton London Borough Council [1978] AC 728; and Hedley Byrne & Co v Heller & Partners [1964] AC 465. It has to be remembered that the House of Lords departed from its decision in Anns v Merton in Murphy v Brentwood District Council [1991] 1 AC 398. In Yianni, the valuation report itself was not provided to the purchasers. In concluding that the defendants in that case owed the purchasers a duty of care, Park J. said at page 455H:

    The defendants’ representative who surveyed and valued 1, Seymour Road noted the type of dwelling house it was; its age, its price and the locality in which it was situated. It was plainly a house at the lower end of the property market. The applicant for a loan would therefore almost certainly be a person of modest means who, for one reason or another, would not be expected to obtain an independent valuation, and who would be certain to rely, as the plaintiffs in fact did, on the defendants’ valuation as communicated to him in the building society’s offer. I am sure that the defendants knew that their valuation would be passed on to the plaintiffs and that the defendants knew that the plaintiffs would rely upon it when they decided to accept the society’s offer.

    For these reasons I have come to the conclusion that the defendants owed a duty of care to the plaintiffs because, to use the words of Lord Wilberforce in Anns v Merton Borough Council [1978] AC 728, 751H, there was a sufficient relationship of proximity such that, in the reasonable contemplation of the defendants, carelessness on their part might be likely to cause damage to the plaintiffs.

  14. Park J. then asked whether there were any considerations which ought to negative or reduce or limit the scope of the duty or the class of person to whom it is owed. [This was the respect in which the House of Lords subsequently departed from its decision in Anns v Merton.] He considered various submissions in concluding that the defendants did owe the purchasers a duty of care. In rejecting a submission that potential liability would be unduly wide, he said at page 456G:

    In my view, the only person to whom the surveyor is liable is the party named in the building society’s "Instructions to Valuer" addressed to him. That party, as well as the building society, has to be regarded as his client. That does not seem to me to be unreasonable, since, to his knowledge, his fee for the valuation is paid by that party to the building society which hands it over to him.

  15. In Smith v Bush, the plaintiff applied to a building society for a mortgage to help her buy a house. She paid them an inspection fee. The building society instructed the defendant firm of surveyors and valuers to report. Their valuation report was negligently prepared. The building society supplied a copy of it to the plaintiff who relied on it. She claimed damages against the defendants, who relied on a disclaimer. The judge gave judgment for the plaintiff and the Court of Appeal dismissed the defendants’ appeal. In a second case, Harris v Wyre Forest District Council, the plaintiffs applied to the first defendant council for a mortgage to help them buy a house. They paid an inspection fee. The council instructed the second defendant, Mr. Lee, a valuer employed by them, to carry out an inspection and to report. His report was not shown to the plaintiffs but they were subsequently offered a mortgage by the council. The report was negligently prepared. The house subsequently needed expensive structural repairs. The plaintiffs claimed damages against the council and Mr. Lee. The judge found for the plaintiffs. The Court of Appeal allowed an appeal by the defendants.

  16. In each case, there was an appeal to the House of Lords. The appeals were heard together. The House of Lords dismissed the appeal in the first case and allowed the appeal in the second. It was decided that a valuer instructed by a prospective mortgagee to carry out a valuation of a modest house for the purpose of deciding whether or not to grant a mortgage on it to the prospective mortgagor owed a duty of care to the mortgagor to exercise reasonable skill and care in carrying out the valuation, if he was aware that the mortgagor would probably buy the house in reliance on the valuation without an independent survey, unless the valuer had made a disclaimer of liability to the mortgagor which satisfied the requirement of reasonableness provided by section 11(3) of the Unfair Contract Terms Act 1977. It was further held that it would not be fair and reasonable to allow the valuer to rely on a disclaimer, since the valuer was a professional person, whether he was acting as an independent person or as an employee of the mortgagee, whose services were paid for by the mortgagor, who might or might not be supplied with a copy of the valuation report.

  17. The substantive speeches were those of Lord Templeman, Lord Griffiths and Lord Jauncey of Tullichettle. Lord Keith of Kinkel and Lord Brandon of Oakbrook each agreed with these three speeches.

  18. Lord Templeman said at page 843H that the two appeals were based on allegations of negligence in circumstances which were akin to contract. The purchasers paid for a valuation report. 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, Lord Templeman would expect the law to impose on the valuer a duty of care. In the Smith case, it was conceded that the defendants owed the plaintiffs a duty of care unless they were protected by the disclaimer of liability (see 856C). The appeal proceeded on the clear basis that the concession was correctly made. The valuer in the Harris case was the individual employee of the council, Mr. Lee.

  19. It was submitted on behalf of the plaintiffs, Mr. and Mrs. Harris, that a voluntary assumption of responsibility is not a prerequisite in all cases of liability for negligence (see 835C). This submission was essentially upheld. Lord Templeman referred at page 845F to 846G to passages from the opinions of Lord Reid and Lord Devlin in Hedley Byrne v Heller & Partners [1964] AC 465; to passages from the judgments of the Court of Appeal in Ministry of Housing & Local Government v Sharp [1970] 2 QB 223 in which both Lord Denning MR and Salmon LJ rejected submissions that, in all cases, the obligation to take reasonable care depends on the voluntary assumption of responsibility; and to the decision of the Court of Appeal of Northern Ireland in Curran v Northern Ireland Co-ownership Housing Association (1986) 8 NIJB 1, where it was held that there was in that case no voluntary assumption of responsibility by a mortgagee of a house to the purchaser in respect of a valuation undertaken for the mortgagee by a valuer, so that the mortgagee owed no duty of care to the purchaser. Lord Templeman then said at page 847C:

    I agree that by obtaining and disclosing a valuation, a mortgagee does not assume responsibility to the purchaser for that valuation. 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 on by the purchaser in order to decide whether to or not to enter into a contract to purchase the house.

    The clear reference here is to the professional person who carries out the inspection and makes the report. As Lord Templeman said at page 850C:

    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, will recognise defects and be able to assess value.

    And at page 852C, Lord Templeman said:

    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 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 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.

  20. Lord Griffiths, at page 854H, expressed the first question which the appeals raised in terms of the duty of care which the law places on "a professional valuer of real property". At page 862B, he did not accept the submission that it was essential to found liability for negligent misstatement that there had been a "voluntary assumption of responsibility". Obviously, if an adviser expressly assumes responsibility for his advice, a duty of care will arise, but that is extremely unlikely in the ordinary course of events. Lord Griffiths continued at 862D:

    The House of Lords [in Hedley Byrne] approved a duty of care being imposed on the facts in Cann v Willson (1888) 39 Ch.D. 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.

  21. It was submitted on behalf each of the defendants in the Harris case that Mr. Lee’s duty lay towards his employer, the council, and not to the plaintiff mortgagors (see 836B). This submission failed. Lord Templeman said, at page 843A, that one of the issues was whether the council’s valuer was liable to Mr. and Mrs. Harris in negligence. The council were vicariously liable for Mr. Lee’s services (see 844A; 849D).

  22. It was submitted on behalf of the defendants in the Smith case that Yianni v Edwin Evans & Sons was wrongly decided (see 836E). This submission failed and Yianni was approved, notwithstanding what Kerr L.J. in the Court of Appeal referred to as "its inherent jurisprudential weakness" (see 864A-G). Lord Griffiths pointed out, at page 861F, that in Yianni there was no disclaimer of liability and the valuation report was not shown to the purchaser.

  23. It is, I think, clear that, although Smith v Bush and Harris v Wyre Forest are generally consonant with other leading cases which consider duties of care in negligence in a variety of circumstances, they were influenced by particular public policy considerations. Lord Griffiths said at page 859G:

    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.

  24. Lord Griffiths, having held that Yianni was correctly decided and having restated his view that voluntary assumption of responsibility is unlikely to be a helpful or realistic test in most cases, considered at 864H:

    .... in what circumstances should the law should 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.

  25. Lord Griffiths said that there was an overwhelming probability that the purchaser would rely on the valuation. The amount of the liability cannot be very great because it relates to a modest house. There would not be indeterminate liability because it would be limited to cases where the adviser knows that there is a high degree of probability that some other identifiable person will act upon the advice. Lord Griffiths continued at page 865G:

    I have already pointed out that the only real distinction between the present case [Harris] 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.

  26. This was the passage by which the judge in the present case held himself bound to decide that Mr. Babb owed Miss Merrett a duty of care. In my view, he was correct to do so. Strictly speaking, it was perhaps not absolutely necessary to decide in the Harris appeal that the professional employee of a firm of independent surveyors owed a duty of care to the purchasers in the circumstances of that case. Mr. Lee was the professional employee of the mortgagees, not of a firm of independent surveyors. But the essence of the decision is that the professional person who carries out the inspection and makes the valuation is the person on whom the purchaser in these circumstances relies to exercise proper skill and judgment.

  27. Lord Griffiths thus expressed strong doubts about the usefulness in every case of a test of voluntary assumption of responsibility. The threefold test which he did express as applicable – that of foreseeability of damage, proximity coupled with reliance, and that it should be just and reasonable to impose a duty of care – was the now familiar one which emerged in full force in Caparo Industries v Dickman [1990] 2 A.C. 605. In Caparo, incidentally, Lord Roskill also expressed (at page 628) doubts about the usefulness of a test of voluntary assumption of responsibility for the imposition of a duty of care.

  28. In Smith v Bush Lord Jauncey of Tullichettle analysed Hedley Byrne at length. He did not think that the tripartite relationship between the plaintiffs, the valuers and the mortgagees could be said to have given rise to a relationship "equivalent to contract". There was no room for a contract between Mrs. Smith and the appellants. But he said at page 871E:

    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 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.

  29. Lord Jauncey found the case of Harris v Wyre Forest more difficult than that of Smith v Bush. His point of difficulty was whether the evidence supported a finding that Mr. Lee was aware that the Harrises would be likely to buy in reliance on his valuation without obtaining further advice – see page 875G. That problem does not arise in the present appeal, since Mr. Babb accepted that he was aware that Miss Merrett and her mother were likely to rely on his valuation report.

  30. It is, I think, important to recall how Smith v Bush and Harris v Wyre Forest fit into the succession of leading cases which considered duties of care in negligence. I have indicated that Park J. in Yianni applied the test in Anns v Merton. The House of Lords departed from Anns in Murphy v Brentwood District Council [1991] 1 AC 398. Murphy was decided on 26 July 1990. Caparo was decided on 8 February 1990. Smith v Bush was decided on 20 April 1989, before the decisions in Caparo and Murphy. But the departure from Anns and the arrival of Caparo had been anticipated for at least 5 years before 1990. This may be seen from a succession of cases in the House of Lords or Privy Council including Peabody Donation Fund v Sir Lindsay Parkinson [1985] A.C.210, Leigh and Sullivan v Aliakmon Shipping [1986] A.C. 785, Curran v Northern Ireland Co-ownership Housing Association [1987] A.C. 718, Yuen Kun Yeu v Attorney-General of Hong Kong [1988] A.C. 175, Hill v Chief Constable of West Yorkshire [1989] A.C. 53 and D. & F. Estates v Church Commissioners [1989] A.C. 177. All these cases antedate Smith v Bush, which is not to be seen, in its approval of Yianni, as a latter day decision based on Anns, but as a close precursor of Caparo which nevertheless decided the law in particular circumstances on strong public policy grounds relevant to those circumstances. Subsequent House of Lords decisions, as I shall show, have regarded Smith v Bush as exemplifying its special facts, but have not modified the basis of principle on which it was decided.

  31. Mr. Walker Q.C., on behalf of Mr. Babb, essentially submits that Smith v Bush is not binding authority establishing that a person in Mr. Babb’s position owes a duty of care to Miss Merrett in the circumstances of this case. The point of distinction is that Mr. Babb was an employee only of the firm instructed by the building society to inspect and report. He was not personally instructed by the building society and he should not be taken to have assumed the necessary responsibility to Miss Merrett. She, for her part, relied on whoever the building society had instructed. In this case it was Clive Walker Associates, not Mr. Babb. Mr. Walker submits that the governing principle underlying the decision in Hedley Byrne is assumption of responsibility. That principle has been underscored in Henderson v Merrett Syndicates [1995] 2 A.C. 145. Mr. Walker refers to passages in the speech of Lord Goff of Chieveley at pages 180C to 181F and 192H to 193E in which Lord Goff expressed a strong preference in the case of Lloyd’s managing agents for a test based on assumption of responsibility without, however, suggesting that this detracted from the decisions in Caparo or importantly Smith v Bush – see page 180H and 182A.

  32. Mr. Walker submits that the relevant law has been authoritatively restated by the House of Lords in Williams v Natural Life Health Foods Ltd [1998] 1 W.L.R. 830. In that case, the second defendant was managing director and principal shareholder in the first defendant company, which granted franchises in the concept of retail health food shops. The plaintiffs approached the company with a view to obtaining a franchise. The company sent them detailed financial projections. They entered into a franchise agreement but the turnover from their retail shop was substantially smaller than had been predicted. They sued the company for loss suffered as a result of the company’s negligent advice. Their cause of action was based on assumption of responsibility. When the company was wound up, they joined the director as second defendant. Their claim against him was based on an assumption of personal responsibility to them. On appeal to the House of Lords, this claim failed. It was held that, to establish the personal liability of a director or employee, there had to be such an assumption of personal responsibility by him as to create a special relationship between him and the plaintiffs. The question was to be determined objectively. The primary focus was on things done or said by the defendant or on his behalf. The question was whether the plaintiffs could reasonably have relied and had relied on an assumption of personal responsibility by him. The facts of the case were insufficient to establish this.

  33. The single substantive speech in Williams was that of Lord Steyn with whom the other four members of the Appellate Committee agreed. He said that the identification of the applicable legal principles was straightforward. Both counsel accepted that the governing principles were those stated by Lord Goff of Chieveley in Henderson v Merrett. Lord Steyn said at page 834E:

    First, in Henderson’s case it was settled that the assumption of responsibility principle enunciated in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] A.C. 465 is not confined to statements but may apply to any assumption of responsibility for the provision of services. The extended Hedley Byrne principle is the rationalisation or technique adopted by English law to provide a remedy for the recovery of damages in respect of economic loss caused by the negligent performance of services. Secondly, it was established that once a case is identified as falling within the extended Hedley Byrne principle, there is no need to embark on any further inquiry whether it is "fair, just and reasonable" to impose liability for economic loss: p. 181. Thirdly, and applying Hedley Byrne, it was made clear that "reliance upon [the assumption of responsibility] by the other party will be necessary to establish a cause of action (because otherwise the negligence will have no causative effect) .... (p. 180)

  34. The issue in Williams, where the company was responsible as principal, was whether the director also incurred personal liability. To establish this, it was not sufficient that there should have been a special relationship with the principal. "There must be an assumption of responsibility such as to create a special relationship with the director or employee himself." (835C). The primary focus had to be exchanges which crossed the line between the defendant director and the plaintiffs. The inquiry had to be whether the director, or anyone on his behalf, conveyed directly or indirectly to the prospective franchisees that he assumed personal responsibility towards them. Lord Steyn also emphasised, with reference to two decisions of the Canadian Supreme Court – London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 S.C.R. 299 and Edgeworth Construction Ltd v N.D. Lea & Associates Ltd [1993] 3 S.C.R. 206 – that, not only had there to be reliance of the personal assumption of responsibility, but the reliance had to be reasonable. Lord Steyn considered academic criticism of the principle of assumption of risk which in support of its argument cited Smith v Bush and White v Jones [1995] 2 A.C. 207. He referred to these as cases "decided on special facts". In his view the general criticism was overstated. "Coherence must sometimes yield to practical justice" (837D).

  35. The Court of Appeal applied the reasoning in Williams in Standard Chartered Bank v Pakistan National Shipping Corporation and Others (No.2) [2000] 1 Lloyd’s L.R. 218. One of many issues in that case was whether a director of a company was personally liable for the company’s deceit. Evans L.J. explained at paragraph 64 that what was contended for was the converse of vicarious liability. The mere fact that the director is a director is not sufficient, but he may be personally liable if he ordered or procured the acts of other persons which render the company liable. It could well be argued that he is liable in procurement, if as director he knowingly commits the acts of deceit on behalf of the company. But procurement was not pleaded and the members of the court agreed that permission to amend the claim should not at that stage be given. Aldous L.J. held at paragraphs 14 and 16 that the fraudulent representations were made by the company and that all the evidence pointed to the conclusion that the plaintiffs had relied on them as being representations of the company. They did not rely on them as representations of the director. A director might assume a personal liability. What amounts to such an assumption would depend on the facts of the particular case. Guidance in that matter was to be found in Williams from which Aldous L.J. quoted extensively. It was necessary to inquire whether the director conveyed directly or indirectly to the plaintiff that he assumed a personal responsibility to the plaintiff. In that case, the director never led the plaintiffs to believe that he was assuming personal responsibility for the company’s misrepresentations. The director could not, therefore, be held liable on that ground.

  36. One of the issues which arose in Phelps v Hillingdon London Borough Council [2000] 3 W.L.R. 776 was whether an educational psychologist employed by a local authority’s school psychological service owed a duty of care to a plaintiff child who was referred to the psychologist. The House of Lords held that a person exercising a particular skill or profession might owe a duty of care in its performance to those who might foreseeably be injured if due care and skill were not exercised. Such a duty did not depend on a contractual relationship between the person causing and the person suffering the damage. An educational psychologist was a person owing such a duty of care and the fact that she owed duties to the local education authority did not mean that she did not also owe a duty to the child. Where an educational psychologist was specifically asked to advise as to the assessment of and future provision for a child and it was clear that the child’s parents and teachers would follow that advice, a duty of care on the face of it arose. The local education authority were vicariously liable for a breach of that duty.

  37. Lord Slynn of Hadley, in considering the question whether the educational psychologist owed a duty of care, said at page 791E:

    It is sometimes said that there has to be an assumption of responsibility by the person concerned. That phrase can be misleading in that it can suggest that the professional person must knowingly and deliberately accept responsibility. It is however clear that the test is an objective one: Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145, 181. The phrase means simply that the law recognises that there is a duty of care. It is not so much that responsibility is assumed as that it is recognised or imposed by the law.

  38. Lord Nicholls of Birkenhead, in considering at page 802G vicarious liability of local authorities, said:

    Take a case where an educational psychologist is employed by an education authority. In the course of his work he assesses a pupil whose lack of progress at school has been causing concern all round: to teachers and parents alike. The child has a learning difficulty. The psychologist sees the child and carries out an assessment. He makes a diagnosis and advises the education authority. The diagnosis is hopelessly wrong. No reasonably competent educational psychologist, exercising reasonable skill and care, would have given such advice. In consequence, the pupil fails to receive the appropriate educational treatment and, as a result, his educational progress is retarded, perhaps irreparably. When carrying out the assessment and advising the education authority, did the psychologist owe a duty of care to the child?

    I confess I entertain no doubt on how that question should be answered. The educational psychologist was professionally qualified. He was brought in by the education authority to assist it in carrying out its educational functions. The purpose of his assessment was to enable him to give expert advice to the education authority about the child. The authority was to act on that advice in deciding what course to adopt in the best interests of the pupil with a learning difficulty. Throughout, the child was very dependent upon the expert’s assessment. The child was in a singularly vulnerable position. The child’s parents will seldom be in a position to know whether the psychologist’s advice was sound or not.

    This seems to me to be, on its face, an example par excellence of a situation where the law will regard the professional as owing a duty of care to a third party as well as his employer.

  39. Lord Clyde said in Phelps v Hillingdon at page 807D:

    It is clear on principle that where a professional person gives advice knowing, or being taken to know, that another will rely on that advice, in deciding how to manage his affairs, the adviser may owe a duty of care to that other person. Opinion has differed on the question whether the language of assumption of responsibility is useful or not. In Smith v Eric S. Bush [1990] 1 A.C. 831, 862, 864 Lord Griffiths observed that he did not think that voluntary assumption of responsibility was a helpful or realistic test for liability, at least in most cases. That opinion was followed by Lord Roskill in Caparo Industries Plc v Dickman [1990] 2 A.C. 605, 628. On the other hand the use of the expression received the support of Lord Goff of Chieveley in Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145, 180-181. The expression may be descriptive rather than definitive, but the point does not seem to me of significance in the present context.

    And Lord Clyde said at page 811H:

    Where a professional person is employed by one person to advise him, it is a question of circumstances whether there will also be a duty owed to other persons. Examples may be found in the cases of a doctor examining a patient for insurance purposes or a surveyor acting for a prospective mortgagee.

  40. Lord Millett in Phelps v Hillingdon at page 814, although expressing himself to have been initially in doubt, was persuaded that the educational psychologist owed the plaintiff a duty of care. Lord Jauncey of Tullichettle and Lord Lloyd of Berwick agreed with Lord Slynn and Lord Clyde. Lord Jauncey also agreed with Lord Nicholls.

    DUTY OF CARE - DISCUSSION

  41. It is necessary to draw together relevant threads of the authorities to which I have referred. During the last twenty years or more, intense and repeated attempts have been made to refine a comprehensive test, shortly expressed, to define circumstances in which a person owes a duty of care to another, breach of which causing loss will give rise to a claim for damages. If the damage is physical damage directly inflicted, there is rarely a problem. If the damage is what has been characterised as foreseeable economic loss, there may be a problem - the more so if what causes the loss is the giving of advice or the providing of information. In such cases especially – but, I think, in every case – reliance is an intrinsically necessary ingredient which appears in every formulation of a test. Beyond that, two strands of consideration emerged. These may for convenience be called the Caparo strand and the Henderson strand. The Caparo strand asks whether, in addition to foreseeability, there is a sufficient relationship of proximity and whether the imposition of a duty of care is fair, just and reasonable. The Henderson strand asks whether the defendant is to be taken to have assumed responsibility to the claimant to guard against the loss for which damages are claimed. The difficulty with the Caparo strand is that it is sometimes seen as being unhelpfully vague. The difficulty with the Henderson strand is that it was originally often expressed in terms of "voluntary assumption of responsibility" which tended to import a degree of subjectivity. Henderson itself put paid to that and, as Lord Slynn said in Phelps,

    [assumption of responsibility] means simply that the law recognises that there is a duty of care. It is not so much that responsibility is assumed as that it is recognised or imposed by the law.

    Thus, the Caparo strand and the Henderson strand in reality merge. In my view, it is very often a helpful guide in particular cases to ask whether the defendant is to be taken to have assumed responsibility to the claimant to guard against the loss for which damages are claimed. But I also think that it is reaching for the moon – and not required by authority - to expect to accommodate every circumstance which may arise within a single short abstract formulation. The question in each case is whether the law recognises that there is a duty of care.

  42. In my view, Smith v Bush fully accords with the analysis in my previous paragraph. Lord Griffiths essentially adopted a Caparo test. His disinclination for a test of assumption of responsibility was affected by the inclusion in it of the word "voluntary". His phraseology at page 862E and 864H, and that of Lord Jauncey at 871E, are very close to that of Lord Slynn in Phelps at page 791. But even if Smith v Bush might not be regarded as in the main stream – see, for example, Lord Steyn in Williams at page 837 that it was "decided on its special facts" – it nevertheless stands unmodified as defining circumstances in which the law recognises that there is a duty of care. "Coherence must sometimes yield to practical justice".

  43. In my judgment, Mr. Walker’s submissions do not succeed in extricating Mr. Babb from a Smith v Bush duty of care in this case. The facts in the present case are barely distinguishable from those in Harris v Wyre Forest, where Mr. Lee was an employee of the local authority but was held to owe a duty of care. A submission that his duty lay towards his employer, the council, and not to the plaintiff mortgagors failed. In my view, there is no presently relevant distinction between Mr. Lee, employed by the council, and Mr. Babb, employed by Clive Walker Associates. The employers were in the one case the mortgagee and in the other the firm of valuers, but none of that was known to the plaintiffs in Harris or to Miss Merrett and her mother in the present case. The relevant relationship was that between the purchaser and the employed professional valuer and the nature of the valuer’s employment is not relevant to that relationship. Mr. Walker’s submitted grounds of distinction were that:

    1. the argument that the duty might be owed by the employer of the valuer, but not the employee, was not canvassed;

    2. Mr. Lee was an employee of a public authority discharging a statutory function rather than an employee of a firm of valuers; and

    3. even if Mr. Lee was to be regarded as having assumed responsibility for the valuation, Mr. Babb (as opposed to Clive Walker Associates) was not in an analogous position.

    The first point may be correct, but does not detract from the fact that Mr. Lee was held to have owed a duty of care. The second and third points are not, in my view persuasive for the reasons which I have just given.

  44. The present case is covered in terms by the passage in Lord Griffiths’ speech at page 865G. The speeches in Smith v Bush all refer to the valuer inferentially or in terms as the individual person who carries out the valuation – see in particular Lord Templeman at 850C and 852C; Lord Griffiths at 854H and 865G. Given that Mr. Babb was a salaried employee of Clive Walker Associates, "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". In my view, this applies just as much to Mr. Babb in the present case as it did to Mr. Lee in Harris. Just as in Yianni and Harris the plaintiffs never even saw the valuation report, so here Miss Merrett and her mother did not know who had carried out the valuation. But I have no doubt that they are to be taken to have relied on the professional skill and care of the individual person who carried it out. Smith v Bush and Phelps v Hillingdon both make it clear that a professionally qualified person giving advice may owe a duty of care to an effective recipient of that advice in addition to the duty owed to their employers. I doubt if this is to be confined strictly to those who may be termed professionally qualified people, because it would depend on the full circumstances in which advice was given, rather than any label appropriate to the adviser. In any event it is not necessary to define who at the fringes might or might not be a professionally qualified person, since on any view Mr. Babb was one. What is more, as a matter of fact in this case, Mr. Babb signed the original report in his personal capacity and was, for the purposes of section 13 of the Building Societies Act 1986 the person who was competent to value and who was not disqualified from doing so. He thus assumed personal responsibility for it. Since he knew that his report would be relied on by Miss Merrett and her mother, the responsibility which he assumed included a responsibility to them.

  45. The decisions of Williams and SCB v PNSC do not, in my view, help Mr. Babb. They were each dealing with relationships and circumstances where the principal defendant was a limited company and the question was whether the director of the company had also assumed a personal responsibility. In those circumstances it was necessary to look for overt dealings between the director personally and the claimant sufficient to give rise to a personal liability which would otherwise not arise, since normally the director of a company is not personally liable for the actions of the company. But in many cases where Smith v Bush applies, including the present case, there is no direct dealing at all between the valuer and the purchaser. Yet the law recognises that in those circumstances there is a duty of care without the need to find any direct overt dealings between the valuer and the purchaser.

  46. It is, of course, unfortunate for Mr. Babb, if he is not insured against this claim. It is not, I think, relevant to the question under consideration that Mr. Babb in particular is not insured, although it is a material consideration that there may be circumstances in which employed professionals may find themselves personally liable for claims against which they are uninsured. Since professional employers will normally be vicariously liable for their professional employees’ breaches of duty, it may be supposed that a solvent employer’s professional indemnity policy will normally cover claims against their professional employees. Prudent professional employees will obviously want to ensure that they are covered personally by their employers’ insurance and may need to take steps to obtain personal insurance if that cover does not continue after their employment ends.

    SECOND GROUND OF APPEAL

  47. Mrs. Scheppel was not joined as plaintiff with Miss Merrett, but the whole amount of the loss was claimed by Miss Merrett alone as plaintiff - claimant. This is acknowledged by Mr. Teverson who now acts on their behalf to have been a mistake. The judge dealt with the matter, as I have said, as a minor problem readily solved by adding Mrs. Scheppel as a defendant, although he did not make any formal order effecting the solution. Mr. Teverson’s eventual submission was that the claim against Mr. Babb was a joint claim; that it was necessary for Mrs. Scheppel to be joined to enable the claim, assuming it is a good one, to succeed; and that this court should exercise its discretion to allow her to be added as claimant, notwithstanding the expiry of the limitation period since the claim was started. He offered an undertaking to obtain and file Mrs. Scheppel’s consent in writing to that being done – see CPR rule 19.4(4).

  48. Mr. Ball, junior counsel on behalf of Mr. Babb, submitted that the claim against Mr. Babb was not a joint claim for the full loss, but that Miss Merrett and her mother each had a personal claim to half the loss. They each relied on the valuation report in a personal individual capacity. Their cause of action accrued when they contracted to purchase the property, not when the purchase was completed. Although they subsequently became joint legal owners and trustees of their respective beneficial interests, the cause of action was not that of the trustees, nor did Miss Merrett sue in her capacity of trustee. Further the cause of action was not theirs as beneficiaries of the trust for sale, since the cause of action accrued before completion and therefore before the trust for sale came into being. Upon this basis, Mr. Ball submitted that the court cannot, alternatively should not, exercise any discretion under section 35 of the Limitation Act 1980 and CPR rule 19.5 in favour of adding Mrs. Scheppel as a party.

  49. Under section 35(3) of the Limitation Act 1980, so far as is relevant to this case, a county court may only allow a new claim to be made in the course of an action after the expiry of a statutory limitation period which would affect a new action to enforce that claim as provided by rules of court. By section 35(2)(b) a new claim includes any claim involving the addition of a new party. The section then provides:

    (4)

    Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose.

    (5)

    The conditions referred to in subsection (4) above are the following–

    (a)

    in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.

    ....

    (6)

    The addition or substitution of a new party shall not be regarded for the purposes of subsection (5)(b) above as necessary for the determination of the original action unless either

    ....

    (b)

    any claim already made in the original action cannot be maintained by or against an existing party unless the new party is joined or substituted as plaintiff or defendant in that action.

  50. CPR rule 19.5 provides that the court may only add a party after the end of a period of limitation under the Limitation Act 1980 if the relevant limitation period was current when the proceedings were started and the addition is "necessary". Rule 19.5.(3) provides:

    (3)

    The addition .... of a party is necessary only if the court is satisfied that–

    ....

    (b)

    the claim cannot properly be carried on by or against the original party unless the new party is added .... as claimant or defendant;

  51. Mr. Ball’s submission was that the claim made in the original proceedings, properly understood, was Miss Merrett’s personal claim which was limited to her half share. The claim which she made in the original action did not and could not include her mother’s half share and accordingly the addition of her mother as a party is not necessary, because the addition of her mother as a party cannot be necessary to maintain the claim to her personal half share. He submits alternatively that, if there is a discretion, the court should not exercise it, because it would be wrong for Mrs. Scheppel to stand aside and avoid any risk of liability for costs and then join in when the claim has succeeded. Mr. Teverson submitted that the claim always was for the full amount; that this claim was a viable claim but that it cannot properly be maintained in full unless Mrs. Scheppel is added as a party. Mr. Ball also submitted that there was no evidence that Mrs. Scheppel relied on the report. This may in literal terms be correct, but her reliance was an inevitable inference from the facts which were established.

  52. In my judgment, the simple fact is that Mr. Babb owed a duty of care to Miss Merrett and her mother jointly from the moment that he undertook the inspection and valuation of the property which he knew that they were considering buying. The niceties of their eventual legal and equitable interests in the property and the times at which they materialised are not relevant to this duty of care. He probably also owed each of them an individual duty of care, in the sense that, had things turned out differently, one or other of them might have brought an individual claim, if in the event one or other of them suffered an individual loss caused by his breach of duty. But as things turned out, the purchase of the property was, throughout the period relevant to this claim, a joint venture resulting in joint ownership. Importantly for present purposes, they were both named in the instruction form pursuant to which Mr. Babb carried out his inspection and valuation.

  53. It is not in dispute but that the relevant limitation period was current when the proceedings were started. For the court to have power to order the addition of Mrs. Scheppel as a new party, the addition has to be "necessary for the determination of the original action": section 35(5)(b) of the 1980 Act. For the addition to be necessary, it has to be shown that "any claim already made .... cannot be maintained" against Mr. Babb unless Mrs. Scheppel is joined: section 35(6)(b). The rules may impose further restrictions (Section 35(4)) but cannot, I think, relax the statutory requirements. So the expression "cannot properly be carried on" in rule 19.5(3)(b) is to be taken as meaning the same as "cannot be maintained" in section 35(6)(b).

  54. The claim made in the original action was for the full amount of the loss. If the claim was, and was only capable of being, an (overstated) personal claim by Miss Merrett, the addition of Mrs. Scheppel is not necessary. But since, as I think, the claim is or includes a joint claim, that claim cannot be properly maintained or carried on unless Mrs. Scheppel is a party. She is accordingly a necessary party in the terms of section 35 of the 1980 Act. This means that the court has power to order her to be joined a claimant.

  55. In my view, the court should exercise its discretion in favour of making the order. There is no injustice to Mr. Babb other than the loss of a quite fortuitous limitation defence. He has from the start been defendant to the full claim whose substance is unaffected by the technicality now under consideration. There has been no ulterior motive in failing until now to join Mrs. Scheppel. It was a mistake, entirely understandable in a non-lawyer, since, at the time the proceedings were started, Miss Merrett was effectively the sole owner of the property who would sustain the full loss.

  56. For these reasons, I would accede to the application to join Mrs. Scheppel as claimant and, having done so, dismiss the appeal. Questions of costs and interest would remain for determination.

    Wilson J

  57. I agree that the appeal should be dismissed for the reasons given by May L.J.

  58. It is indeed over-ambitious to try to fit all the authorities referred to by May L.J. into a grand scheme. In that it is widely understood, including by surveyors, that it is unreasonable to expect the prospective purchaser of a modest property to pay for a second valuation, the law may go out of its normal way in order to cast a duty of care towards that purchaser upon the maker of the first, notwithstanding the absence of any contractual responsibility or other direct relationship. So in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 at 837D Lord Steyn described the cases of Smith v Eric S. Bush and Harris v Wyre Forest District Council [1990] AC 831 as "decided on special facts".

  59. If the facts of Harris are special, so are the facts of the present case. For in my view there is no relevant distinction between the situation of Mr. Lee and that of Mr. Babb. The only arguable distinction, so it seems to me, is the difference in the nature of their employers: a local authority employed Mr. Lee, whereas another valuer employed Mr. Babb. So Mr. Walker Q.C. in effect submits that, if in Harris any valuer was to owe a duty of care, it had to be Mr. Lee, whereas it is otherwise in the present case.

  60. We know from the crucial passage in Harris at 865G, set out by May L.J. in paragraph 25 above, that such a distinction found no favour with Lord Griffiths. But, even in the absence of that guidance, I would have reached the same conclusion. I start by noting that, just as Miss Merrett and Mrs. Scheppel had no contact with Mr. Babb or with his employer, Mr. Walker, prior to exchange of contracts and was unaware of the names or identities of either of them, there is nothing to suggest that Mr. and Mrs. Harris had any such contact with Mr. Lee or was aware of his identity. At least, however, Miss Merrett and Mrs. Scheppel received a copy, albeit anonymised, of the report which Mr. Babb had written, whereas Mr. and Mrs. Harris did not receive a copy of Mr. Lee’s report. Were we to have asked Miss Merrett and Mrs. Scheppel, when their pens were poised above the contract, upon whom they were relying in their decision to pay £47,500 for the property, their answer would surely have been "Upon whichever valuer wrote that report". Had we then explained to them that the professional surveyor and valuer who inspected the property and wrote the report did so as an employee of another professional surveyor with whom the building society had contracted for the supply of the report, I cannot think that the ladies would have wished to amend their answer in any way, other than perhaps to add "So what?" What reasonably mattered to them, as to Mr. and Mrs. Harris, was the professional expertise of the man on the ground.

  61. If an assumption of responsibility is a pre-requisite of a duty of care rather than a label declaratory of its existence, I, for my part, have no difficulty in discerning it in the present case. Mr. Babb is a professional person and, by writing his name and professional qualifications at the end of the report, expressly represented, to those with access to that part of it, that it was the product of his professional expertise. Indeed, under section 13(1)(c) of the Building Societies Act 1986, the society had to seek to ensure that the officer assessing the application for an advance

    .... will have furnished to him a written report on the value of the land .... made by a person who is competent to value, and is not disqualified under this section from making a report on, the land in question.

  62. To this end, the society’s printed report form required signature, name, qualifications and date to be appended to the following certificate:

    I certify that I am not disqualified under Section 13 of the Building Societies Act 1986 from making this report.

  63. This certificate was signed by Mr. Babb, not by Mr. Walker; and the qualifications recited were those of Mr. Babb, not of Mr. Walker. Even though, by allowing space for inclusion of "Name and Address of Firm", the author of the form envisaged that the signatory might be working within a firm, it is clear to me that Mr. Babb’s assertion was that it was he, not Mr. Walker, who had the necessary competence to value; he, not Mr. Walker, who was not disqualified for any of the reasons set out in s.13(2) of the Act; and he, not Mr. Walker, who was accordingly "making this report".

  64. The question raised by the second ground of appeal is whether, for the purposes of s.35(6)(b) of the Limitation Act 1980, a claim has already been made in the original action which cannot be maintained against Mr. Babb without Mrs. Scheppel’s joinder as a claimant. The claim already made in the original action was for all the loss sustained as a result of the purchase; and it is now clear that the loss was sustained by Miss Merrett and Mrs. Scheppel in their personal capacities in equal shares. In my view the realistic analysis of the original action is that it included a claim for the loss sustained by Mrs. Scheppel; and, obviously, such part of it cannot be maintained against Mr. Babb without her joinder as a claimant. There is, I think, a self-serving circularity about Mr. Ball’s submission that, instead, the original claim should be considered to be an inflated claim referable to Miss Merrett’s own loss. On that basis joinder of a second claimant under s.35(6)(b) could, whatever the substance of the original claim, be obstructed by the single fact – which gives rise to the application in the first place – that the claim of the proposed second claimant has wrongly been attributed to the first claimant. So in my view it is logical to analyse the substance of the claim in the original action without regard to the identity of the original claimant.

    Aldous LJ

  65. Professional people should not be surprised if it is held that they are liable for their negligent advice. But the question raised in this case requires consideration as to whether Mr. Babb, an employed surveyor of Clive Walker Associates, (CWA), is personally liable for advice given by CWA but provided by him.

  66. This appeal depends upon issues of fact and law. The result is of considerable importance to certain types of employees of companies and firms. If Mr. Babb is held liable, then employees like him should consider whether they need professional indemnity insurance, particularly where their employer might not be covered by insurance for all eventualities.

  67. In view of the full statement of facts set out in the judgments of HHJ Overend and May LJ I will confine myself to a summary sufficient to explain why I would allow this appeal.

  68. In June 1992 CWA were instructed by the Bradford and Bingley Building Society to value 18 Trelawney Road Falmouth for the purposes of a proposed mortgage. It was a property to be purchased by the claimant Miss Merrett and her mother. They were to be charged a fee for the valuation. The job was undertaken by Mr. Babb, a surveyor employed by CWA. He inspected the property and filled in the particular form required by the Bradford and Bingley Building Society. That form consisted of a number of carbonised pages, one of which was to be sent to the prospective purchaser of the property.

  69. Mr. Babb noted in the report that he produced that the property contained certain cracks, but he failed to point out that settlement had taken place. The judge held that his report should have recommended further investigation by a structural engineer or a chartered building surveyor and that the failure to do so was negligent. It followed that CWA were in breach of contract with the Bradford and Bingley Building Society in that they failed to exercise appropriate skill and care when preparing the report. They knew that the result of the valuation would be reported to Miss Merrett and her mother and I have no doubt that they owed them a duty of care which was broken. Unfortunately for Mr. Babb the proprietor of CWA became bankrupt and his trustee disclaimed his insurance policy. The result was that Miss Merrett could not obtain compensation from anybody other than Mr. Babb. For that reason she started these proceedings claiming damages for negligence from Mr. Babb. He had no insurance, but was held liable by the judge.

  70. On this appeal, the judge’s conclusion that the report prepared by Mr. Babb did not conform to the standard which a competent surveyor would have prepared was not challenged. But Mr. Babb challenged the finding of the judge that he owed Miss Merrett and her mother a duty of care. Success in that challenge involves both the law and the facts.

  71. The leading cases have been reviewed by May LJ and there is no need for me to lengthen this judgment by carrying out a similar exercise. In my view the principles of applicable law can be taken from the speech of Lord Steyn in Williams v Natural Life Ltd [1998] 1 WLR 830 as his reasons were accepted without qualification by Lord Goff, Lord Hoffmann, Lord Clyde and Lord Hutton. At page 834 he said:

    My Lords, a great many precedents were cited at first instance, in the Court of Appeal and in the printed cases lodged for the purpose of the present appeal. It is unnecessary to embark on a general review of the authorities. The sole purpose of the citation of precedent is, or ought to be, the identification of a legal principle or rule which covers, or may arguably cover, the issue in the case to be decided. And that is how I hope to approach the problem under consideration. In this case the identification of the applicable principles is straightforward. It is clear, and accepted by counsel on both sides, that the governing principles are stated in the leading speech of Lord Goff of Chieveley in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. First, in Henderson’s case it was settled that the assumption of responsibility principle enunciated in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 is not confined to statements but may apply to any assumption of responsibility for the provision of services. The extended Hedley Byrne principle is the rationalisation or technique adopted by English law to provide a remedy for the recovery of damages in respect of economic loss caused by the negligent performance of services. Secondly, it was established that once a case is identified as falling within the extended Hedley Byrne principle, there is no need to embark on any further inquiry whether it is "fair, just and reasonable" to impose liability for economic loss: p. 181. Thirdly, and applying Hedley Byrne, it was made clear that ‘reliance upon [the assumption of responsibility] by the other party will be necessary to establish a cause of action (because otherwise the negligence will have no causative effect) ....’ (p. 180)

    Fourthly, it was held that the existence of a contractual duty of care between the parties does not preclude the concurrence of a tort duty in the same respect.

    It will be recalled that Waite LJ took the view that in the context of directors of companies the general principle must not "set at naught" the protection of limited liability. In Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517, 524, Cooke P. expressed a very similar view. It is clear what they meant. What matters is not that the liability of the shareholders of a company is limited but that a company is a separate entity, distinct from its directors, servants or other agents. The trader who incorporates a company to which he transfers his business creates a legal person on whose behalf he may afterwards act as director. For present purposes, his position is the same as if he had sold his business to another individual and agreed to act on his behalf. Thus the issue in this case is not peculiar to companies. Whether the principal is a company or a natural person, someone acting on his behalf may incur personal liability in tort as well as imposing vicarious or attributed liability upon his principal. But in order to establish personal liability under the principle of Hedley Byrne, which requires the existence of a special relationship between plaintiff and tortfeasor, it is not sufficient that there should have been a special relationship with the principal. There must have been an assumption of responsibility such as to create a special relationship with the director or employee himself.

  72. In the present case Mr. Babb was employed by a firm, not a company, but that cannot alter the principles of law that need to be applied. Neither can it matter on principle that Mr. Babb was a qualified surveyor.

  73. The difficulty in Williams was the practical application of what Lord Steyn called "the extended Hedley Byrne principle" to a case where liability was sought to be imposed upon a director of a company. Lord Steyn pointed out at page 835 that the touchstone of liability was not the state of mind of the defendant. There had to be an assumption of responsibility such as "to create a special relationship with the director or employee." The test, being objective, meant that the primary focus was on things said or done by the defendant or on his behalf during dealings with the plaintiff. As he said at page 835:

    The primary focus must be on exchanges (in which term I include statements and conduct) which cross the line between the defendant and the plaintiff .... In such a case where the personal liability of the director is in question, the internal arrangements between a director and his company cannot be the foundation of a director’s personal liability in tort. The enquiry must be whether the director, or anybody on his behalf, conveyed directly or indirectly to the prospective franchisees [the plaintiffs] that the director assumed personal responsibility towards the prospective franchisees [page 835H].

  74. Lord Steyn at page 836 A referred to Fairline Shipping Corporation v Adamson [1975] QB 180; a case where the director was held liable. He wrote to the customer and created the clear impression that he was personally responsible. To the contrary was Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517, a case of a one-man company.

    Lord Steyn went on to deal with causation. He concluded at page 837:

    The test is not simply reliance in fact. The test is whether the plaintiff could reasonably rely on an assumption of personal responsibility by the individual who performed the services on behalf of the company.

    Later he said at page 837 G:

    .... it is important to make clear that a director of a contracting company may only be held liable where it is established by evidence that he assumed personal liability that there was the necessary reliance. There is nothing fictional about this species of liability in tort.

  75. I return to the facts. They are of primary importance because, as Lord Steyn pointed out, the questions are whether Mr. Babb assumed personal liability, as opposed to CWA, and whether there was the necessary reliance are dependent upon the facts. There cannot be anything fictional about this species of tort. The assumption of responsibility must be such as to create a special relationship.

  76. Mr. Babb never met Miss Merrett nor communicated with her. The document that she received from the Bradford and Bingley Building Society did not mention Mr. Babb by name, although it did contain the material part of the report that he prepared. All she knew was that the Bradford and Bingley Building Society had commissioned a valuation. No doubt it was reasonable for her to assume that that was carried out by a qualified professional.

  77. Mr. Teverson who appeared for Miss Merrett, drew to our attention the part of the form that was retained by the Bradford and Bingley Building Society. It included the statement "I certify that I am not disqualified under Section 13 of the Building Societies Act 1986 from making this report". It was signed by Mr. Babb who gave his qualifications. There also appeared the name and address of CWA. The continuation page was signed by Mr. Babb for CWA.

  78. Whatever be the position between the Bradford and Bingley Building Society and Mr. Babb, there is in my view no factual basis for the conclusion Miss Merrett could have reasonably relied on an assumption of personal responsibility by Mr. Babb. She never knew him, she never met him and the document that was sent to her never mentioned his name. All that she knew was that that Bradford and Bingley Building Society had commissioned a valuation for which she had paid. It had been carried out and the result had been communicated to her. That valuation was in fact the result of CWA being instructed. It was CWA that was paid, not Mr. Babb. Mr. Babb never conveyed anything to Miss Merrett that suggested that he assumed personal responsibility as opposed to the firm for which he worked which was engaged to do the survey by the Bradford and Bingley Building Society.

  79. Considerable reliance was placed by Mr. Teverson on the recent decision of the House of Lords in Phelps v Hillingdon London Borough Council [2000] 3 WLR 776. The Williams case was not mentioned in any of the speeches of their Lordships in that case. That in my view is understandable as the facts are completely different. In Phelps three cases were considered together. In the first which I will refer to as the Hillingdon case the educational psychologist who examined the claimant was insufficiently experienced and was alleged to have acted negligently. In the second, Hampshire case, the headmaster was alleged to have been negligent in failing to obtain the appropriate advice. In the third, the Clwyd case, the claimant had a progressive muscle-wasting disease and it was alleged that the teachers had failed to exercise the reasonable skills of their calling in providing for his education.

  80. Teachers and educators deal directly with parents and children. The exchanges between such people and their pupils are direct and personal, thereby creating a special relationship. Although the advice given by them may result in decisions being taken by their employer, the Local Authority, it is they which deal direct with the pupils and their parents. To my mind it is plain that parents can and will reasonably rely on an assumption of personal responsibility by teachers or educationalists who deal with their children despite the fact that they are employed by a Local Authority. There is no similarity between a teacher’s or an educationalist’s relationship with pupils and a director of a company, as in the Williams case, nor of an employed surveyor who was unknown to the prospective purchaser and whose firm was instructed to provide the service required by the claimant.

  81. Similarly in Smith v Bush two cases were considered, Smith v Bush and Harris v Wyre District Council [1990] 1 AC 831. In the Harris case, Mr. and Mrs. Harris wished to purchase a house and applied to their Council for a mortgage. They signed the application forms and paid a fee for a valuation. It was carried out by Mr. Lee, an employee valuer. Mr. Lee did not exercise reasonable skill and care and the Council were held vicariously liable for his acts. As Lord Templeman pointed out (page 844) the allegation of negligence was made in circumstances which were akin to contract. Mr. and Mrs. Harris paid the fee to the Council for the valuation. They decided to do the valuation and were held vicariously liable for the acts of Mr. Lee.

  82. As was made clear in Williams, whether or not a director or an employee should be held to have assumed personal liability depends upon the evidence. In the Harris case an employed valuer of the Council had a direct relationship with the prospective purchaser. The Council were the lenders. In my view Council surveyors, like teachers, deal with the public with the result that a special relationship arises between the public and such employees. Thus there was a factual background for a decision that there was an assumption of responsibility. In contrast CWA were engaged by the Bradford and Bingley Building Society. Miss Merrett was entitled to assume responsibility by CWA, but it does not follow that Mr. Babb, a person one step further removed from the prospective purchaser than Mr. Lee, should be held to have the same special relationship as did Mr. Lee.

  83. I am conscious of the statement by Lord Griffiths at p. 836 H, relied on by the judge, that it did not matter whether the professional man was engaged by an independent firm of surveyors. That statement was obiter and a similar statement does not appear in the speech of Lord Templeman. Further the two cases reported in [1990] 1 AC 381 were specifically referred to by Lord Steyn in the Williams case as cases "decided on special facts". It follows that I do not believe that that statement can bind this Court.

  84. In the other case, Smith v Bush, Mrs. Smith applied to the Abbey National Building Society for a mortgage. She paid a fee for the valuation. The Abbey National instructed Eric S. Bush and Co (a firm) to carry it out. It in fact was carried out by Mr. Cannell, a senior partner. It was conceded that Eric S. Bush and Co owed a duty of care. The sole question, considered by the House of Lords, was whether an exclusion clause gave protection. The issue in this case, whether an employee was liable, was not considered.

  85. It is clear from Williams that whether or not an employed surveyor such as Mr. Babb, is personally liable depends upon the facts of the particular case. For the reasons that I have already given, I conclude that Miss Merrett could not reasonably rely on an assumption of personal responsibility by Mr. Babb who carried out the survey on behalf of CWA. I therefore would allow the appeal.

    QUANTUM

  86. As I have concluded that the appeal should be allowed, it is not necessary to go on and consider the appeal on quantum. As the matter was fully argued and the submission of the parties reflected a more sophisticated approach than that adopted before the judge, I will deal with this issue shortly upon the assumption that Mr. Babb is liable for negligence.

  87. The negligent advice of CWA caused a loss of £14,500. The question considered was whether Miss Merrett, the only claimant, could recover the total amount or only £7,250. The judge held that she could recover the total amount as she was entitled to claim as a joint trustee of the legal estate. The fact that her mother was not joined as a party was a technical objection of no weight.

  88. As May LJ has pointed out, Mr. Ball submitted that the claim against Mr. Babb was not a joint one. Thus an omission to join the mother could not be remedied by amendment to the claim as her claim was statute-barred.

  89. In my view it is necessary to decide two issues before considering whether Miss Merrett can claim the full loss or any defect in the claim can be remedied by amendment.

    • First, when did Miss Merrett’s and her mother’s cause of action accrue?

    • Second, what was the nature of the cause of action that accrued?

  90. I believe that Mr. Ball is correct in his submission that the cause of action must have accrued at least when Miss Merrett and her mother signed the contract to purchase 18 Trelawney Road. At that stage the necessary ingredients of a cause of action in negligence existed, namely breach of duty, causation and damage.

  91. At the date when Miss Merrett and her mother signed the contract the law did not impose a trust for sale. The Law of Property Act 1925 only imposed a trust for sale when the house was conveyed. It follows that the causes of action of Miss Merrett and her mother were personal.

  92. The conveyance was signed in 1992 and these proceedings were started in the Truro County Court on 17th November 1997. Miss Merrett was named as the sole claimant. It follows that the claim by Miss Merrett was not statute-barred, but any claim by her mother would have been by the time of the hearing before the judge on 9th November 1999.

  93. I am prepared to assume that the pleadings served on behalf of Miss Merrett claimed all the damages, but in my view the amount recoverable must be limited to that which reflected her personal cause of action, namely £7,250. The remaining £7,250 was recoverable by her mother as she was the only one who had a cause of action for that sum of money.

  94. To enable more than £7,250 to be recovered in these proceedings, it would be necessary to join Miss Merrett’s mother as a party. That would involve making a "new claim" as defined in section 35(2) of the Limitation Act 1980. That course is prohibited by section 35(3) of the 1980 Act unless rules of court enable that to be done (see section 35(4)). However section 35(4) only permits a new claim "if the conditions specified in subsection (5) can be satisfied ...." Subsection (5) is in these terms:

    (5)

    The conditions referred to in subsection (4) are the following–

    (a)

    in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and

    (b)

    in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.

  95. Subsection (6) is also relevant.

    (6)

    The addition or substitution of the new party shall not be regarded for the purpose of subsection (5)(b) above as necessary for the determination of the original action unless either–

    (a)

    the new party is substituted for a party whose name was given in any claim made in the original action in mistake for the new party’s name; or

    (b)

    any claim already made in the original action cannot be maintained by or against an existing party unless the new party is joined or substituted as plaintiff or defendant in that action.

  96. I accept Mr. Teverson’s submission that condition (5)(a) is satisfied, but I reject his submission that condition (5)(b) is also satisfied. The addition of the mother as a party was not necessary for the determination of Miss Merrett’s claim. I accept as I have said, that Miss Merrett claimed in her pleading for the totality of the damages, but that cannot be determinative. Miss Merrett and her mother had separate causes of action. They could have issued separate proceedings which would have been properly constituted without the addition of the other. Thus Miss Merrett’s claim could have been maintained by her and the addition of the name of her mother was not necessary to determine her action.

  97. The Civil Procedure Rules reflect the terms of section 35 of the Limitation Act 1980. They do not permit a party to make "a new claim" if the conditions in subsection (5) of section 35 of the 1980 Act are not satisfied.

  98. For the reasons that I have given, I conclude that even if Mr. Babb had been liable to Miss Merrett she could only recover £7,250. Any claim by her mother was statute-barred at the date of the trial and it is not possible at this stage for her to be added to the action to enable her to recover the damage that she suffered. She must therefore look elsewhere for compensation if that is possible.


Cases

Smith v Eric S. Bush & Harris v Wyre Forest District Council [1990] 1 AC 831; Yianni v Edwin Evans & Sons [1982] QB 438; Candler v Crane, Christmas & Co [1951] 2 KB 164; Anns v Merton London Borough Council [1978] AC 728; Hedley Byrne & Co v Heller & Partners [1964] AC 465; Anns v Merton in Murphy v Brentwood District Council [1991] 1 AC 398; Ministry of Housing & Local Government v Sharp [1970] 2 QB 223; Curran v Northern Ireland Co-ownership Housing Association (1986) 8 NIJB 1; Caparo Industries v Dickman [1990] 2 A.C. 605; Peabody Donation Fund v Sir Lindsay Parkinson [1985] A.C.210; Leigh and Sullivan v Aliakmon Shipping [1986] A.C. 785; Curran v Northern Ireland Co-ownership Housing Association [1987] A.C. 718; Yuen Kun Yeu v Attorney-General of Hong Kong [1988] A.C. 175; Hill v Chief Constable of West Yorkshire [1989] A.C. 53; D. & F. Estates v Church Commissioners [1989] A.C. 177; Henderson v Merrett Syndicates [1995] 2 A.C. 145; Williams v Natural Life Health Foods Ltd [1998] 1 W.L.R. 830; London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 S.C.R. 299; Edgeworth Construction Ltd v N.D. Lea and Associates Ltd [1993] 3 S.C.R. 206; White v Jones [1995] 2 A.C. 207; Standard Chartered Bank v Pakistan National Shipping Corporation and Others (No.2) [2000] 1 Lloyd’s L.R. 218; Phelps v Hillingdon London Borough Council [2000] 3 W.L.R. 776; Fairline Shipping Corporation v Adamson [1975] QB 180; Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517; Harris v Wyre District Council [1990] 1 AC 831

Legislations

Building Societies Act 1986: s.13

Limitation Act 1980: s.35(3)

Civil Procedure Rules 1998: R. 19.5

Building Societies Act 1986: s.13

Representations

R. Walker QC and S. Ball for the Appellants (instructed by Howard & Over)

P. Teverson for the Respondent (instructed by Hine Downing)


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