Smith v Eric S Bush (A Firm)

Factual and Procedural Background

These consolidated appeals concerned two separate house-purchase transactions at the lower end of the property market.

• Appeal 1 (Smith). The home-buyer (“Respondent 1”) applied to Company A (a building society) for a mortgage and paid a small “valuation fee.” Company A instructed Appellant Firm (a firm of surveyors) to produce a valuation report. The report—containing an explicit disclaimer of liability—valued the property at £16,500 and stated that no essential repairs were required. Relying on that report, Respondent 1 purchased the house for £18,000. Eighteen months later severe structural defects emerged. At first instance the trial judge found the valuer negligent and awarded damages; the Court of Appeal upheld that finding. Appellant Firm appealed to the House of Lords.
• Appeal 2 (Harris). Two first-time buyers (“Appellants 2”) sought a local-authority mortgage from The Council. They paid a £22 fee that covered an internal valuation by the Council’s employee valuer. The application form contained a disclaimer stating that the valuation was solely for the Council’s purposes and that no responsibility was accepted for value or condition. The Council offered a loan of £8,505 against an asking price of £9,450, and Appellants 2 completed the purchase. Serious structural problems surfaced three years later. The trial judge awarded damages, but the Court of Appeal reversed the judgment on the strength of the disclaimer. Appellants 2 appealed to the House of Lords.

Legal Issues Presented

1. Whether a valuer instructed by a mortgagee owes the home-purchaser a common-law duty of care when the valuer knows the purchaser will probably rely on the valuation.
2. Whether a disclaimer of liability for negligence contained in an application form or valuation report is a “notice” governed by the Unfair Contract Terms Act 1977 (“UCTA 1977”).
3. If UCTA 1977 applies, whether the particular disclaimers were fair and reasonable under section 2(2) read with section 11(3) of the Act.

Arguments of the Parties

Appellants’ Arguments

• No duty of care was owed because the disclaimer prevented any duty from arising; therefore UCTA 1977 was irrelevant.
• Even if a duty existed, the disclaimer was a pre-condition to the provision of the service and fell outside UCTA 1977.
• Imposing liability would increase surveyors’ insurance costs, produce over-cautious valuations, and ultimately burden consumers.

Respondents’ Arguments

• The valuers knew the purchasers would rely on the reports, creating sufficient proximity to found a duty in tort.
• Under section 13(1) of UCTA 1977 the disclaimers were “notices” purporting to exclude liability and therefore had to satisfy the “reasonableness” test.
• Given the purchasers’ weak bargaining position and the modest nature of the fee, it was neither fair nor reasonable to shift the risk of negligent valuation onto them.

Table of Precedents Cited

Court's Reasoning and Analysis

The House, through speeches by Judge Templeman, Judge Griffiths and Judge Jauncey, adopted a three-stage analysis:

1. Existence of a Duty. A valuer who knows the purchaser has paid (directly or indirectly) for the service and will probably rely on the valuation owes that purchaser a duty of reasonable skill and care. Proximity was found both in knowledge of reliance and in the economic relationship “akin to contract.”
2. Effect of the Disclaimers. Relying on section 13(1) UCTA 1977, the House rejected the argument that a notice that prevents a duty from arising falls outside the Act. Section 11(3) introduces a “but for the notice” test: if liability would have arisen absent the disclaimer, the Act applies.
3. Reasonableness of the Disclaimers. The Court weighed four core factors: (a) unequal bargaining power; (b) impracticability and cost of alternative advice; (c) relative difficulty of the task—visual inspection only; and (d) insurance and loss-spreading. For ordinary dwellings of modest value, it was “neither fair nor reasonable” to shift the whole risk to the consumer purchaser. Different considerations were expressly reserved for high-value or commercial properties.

Holding and Implications

Outcome: The House of Lords dismissed the valuer firm’s appeal in Smith and allowed the home-buyers’ appeal in Harris, reinstating the trial judge’s damage award.

Implications: The decision confirms that:

• Residential mortgage valuations create a tortious duty to purchasers when reliance is foreseeable.
• Disclaimers aimed at negating that duty are subject to UCTA 1977 and will be struck down unless objectively reasonable.
• Professional valuers must carry insurance or price the risk into their fees; the burden can no longer be shifted wholesale to unsophisticated home-buyers. The ruling sets a significant consumer-protection precedent in the United Kingdom.