Posted By Phil Grace
Further to my previous response I have put together the following - a cut&paste from several reviews. If anyone wishes for the full text write to me at
phil_grace@norwich-union-insurance.co.uk -- sorry for the length of this item.
The unfortunate action of the trustee should be noted and also the fact that there is existing case law which has already established the duty owed to a purchaser - this case does not set new law.
In Merrett vs Babb, the court of Appeal held that an employee owes a permanent duty of care and can be personally liable for a claim of negligence against the firm from a dissatisfied client. This has now been confirmed by the House of Lords.
At the time of preparing a mortgage valuation, Mr Babb was a salaried employee of a surveying firm. The sole principal of the firm was subsequently made bankrupt and, contrary to Royal Institution of Chartered Surveyors regulations, professional indemnity insurance was cancelled by the trustee in bankruptcy without run-off cover being put in place.
Babb noted in his report that the property contained certain cracks, but he failed to point out that settlement had taken place. His report should have recommended further investigation by a structural engineer or a chartered building surveyor and the failure to do so was found negligent. Babb had used the building society's standard forms to prepare his report and had signed the top copy, providing his name and professional qualifications to confirm that he was not disqualified under the Building Societies Act.
Details of his employer's name and address were also provided. One of the carbon copies was sent to the claimant - the purchaser - but this copy omitted the firm's name as well as the defendant's name or signature.
Although the surveying firm had no contract with the purchaser, it is no surprise that the duty of care was held to exist. Babb being held personally liable to the purchaser was more unexpected.
After all, the report the purchaser received did not name the valuer and Babb had no direct contact with the purchaser whatsoever.
It is well known that a surveying firm owes a duty of care to the mortgage applicant in such circumstances, but the principal issue on appeal was whether the defendant, who was uninsured, also owed a personal duty of care to the claimant. The authorities were considered at length in the Court of Appeal and, by a majority, it was held that the surveyor who makes inspections and reports
on residential properties on the instructions of a lender did owe a personal duty to the mortgage applicant.
The majority judgment was delivered by May L.J., with whom Wilson J. agreed. A dissenting judgment was given by Aldous L.J.
The court cited with approval the judgment of Park J. in the case of Yianni v. Edwin Evans & Sons [1982] QB 438, where a firm of valuers and surveyors, engaged by a building society to value a property for mortgage purposes, had been held liable to the purchasers in negligence, despite the purchasers ignoring a recommendation in the mortgage application form that they arrange an independent survey. The court also quoted with approval the following from the judgment of Lord Griffiths in the combined cases of Smith v. Bush and Harris v. Wyre
Forest District Council [1990] 1 AC 831: