IN THE HIGH COURT OF JUSTICE
No. QB/2014/0562
QUEEN'S BENCH DIVISION
ON APPEAL FROM MASTER EASTMAN
[2015] EWHC 665 (QB)
Royal Courts of Justice
Monday, 2nd February 2015
Before:
HIS HONOUR JUDGE SEYMOUR QC
BETWEEN:
SUMMIT ADVANCES LTD.
Claimant/Respondent
- and DAVID E. BUSH
Defendant/Appellant
__________
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MR. NICHOLAS BARD (instructed by Richards Solicitors) appeared on behalf of the
Claimant/Respondent.
MS. FIONA SINCLAIR QC (instructed by Browne Jacobson LLP) appeared on behalf of the
Defendant/Appellant.
__________
JUDGMENT
(As approved by the Judge)
JUDGE SEYMOUR :
1
This is an appeal by permission of Warby J against a decision of Master
Eastman which was given on 10th October last year. The application before
Master Eastman was on behalf of the defendant, Mr. David Bush, seeking,
according to the application notice, which was issued on 23rd June 2014,
pursuant to Part 24.2 of the Civil Procedure Rules that summary judgment be
given against the claimant and in favour of the defendant on the whole of the
claim in this action. The reasons, it was said in the application notice, that the
application should succeed was because the claimant's claim against the
defendant, “which is premised on the allegation that the defendant owed a
personal duty of care to the claimant in contract and/or at common law, has no
real prospect of succeeding and there is no other compelling reason why the
claimant's case in this respect should be disposed of at a trial”.
2
The claimant in this action, Summit Advances Ltd, carries on business as a
lender of money on the security of charges over real property. Mr. Bush is, and
was, a surveyor and valuer. At the material time Mr. Bush was employed by a
limited liability partnership called Livemore Partnership LLP. The
circumstances giving rise to the action begin chronologically, it seems, with a
communication from a gentleman called Lee Selbo of a company called
Bespoke Bridging Finance Ltd. (who, as I understand it, are mortgage brokers)
to Josie Hudson at Allied Surveyors plc, seeking a valuation of a property at
Furzehill Place, Stanley Hill, Pirbright in Surrey. That is a very substantial
property; it comprises, it seems, some 16 bedrooms within the house itself, and
the value of the property is said now to be something of the order of £5 million
or £5.5 million. It has been valued as high as £8.3 million, specifically in a
valuation report dated 19th February 2008, which was prepared by Mr. Bush.
3
As I have said, the instructions for the undertaking of the valuation and the
preparation of the report were given by Mr. Selbo of the mortgage brokers to a
company, Allied Surveyors plc. The instruction was given in a fax, and the fax
recited, among other things, "the fee is payable directly by our client, Mr. Hollis,
so please ensure that you have received payment prior to carrying out the
valuation".
4
I shall come in a moment to some of the contents of the valuation report which
was prepared by Mr. Bush, but it is important, I think, first of all, to refer to the
witness statement of Mr. Richard Mansell which was made on 2nd October 2014
in opposition to the application for summary judgment. So far as is presently
material, what Mr. Mansell explained about the circumstances giving rise to the
instruction of Allied Surveyors plc, which was performed by the preparation of
the valuation report of Mr. Bush, starting at para.13 of his witness statement,
was:
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"The Defendant's application herein is based solely on the allegation that
the Defendant held no personal duty of care to the Claimant. In brief the
reason for the Defendant's application is that the Valuation was
commissioned from, and provided by, Allied, who had a national
network of associated businesses, including, Livemore, who in turn were
in fact the employers of Mr. Bush. However, I am advised by solicitors
acting for the Claimant herein, and so I believe, that on the facts,
Mr. Bush accepted personal responsibility for the provision of the
Valuation and on which the Claimant reasonably relied, which gives rise
to grounds for the claim."
5
At para.14 of his witness statement, Mr. Mansell expanded upon the grounds
relied upon as justifying the conclusion that Mr. Bush accepted personal
responsibility. What he said was:
"Contrary to the impression given in the Defendant's witness statement,
at the relevant time of the Borrower's application [the reference to the
borrower is of course to Mr. and Mrs. Hollis] the Defendant was not
simply in general practice working in Essex. I was told at the time of
the advance by the originating broker, Mr. Lee Selbo of Bespoke
Bridging Finance Limited, that Mr. Hollis (being one of the Borrowers)
had confirmed the Defendant held detailed and extensive knowledge of
the estate upon which the Property was situated having valued various
properties therein, had specifically already valued the Property on
previous occasions for different valuation companies and furthermore
held himself out to have knowledge of similar type properties in the
area. It was for this specific reason we agreed to accept a valuation from
Mr. Bush."
6
Then I can go to para.22:
"As is the nature of Bridging Finance, the loan application had to be
underwritten and concluded urgently. Accordingly, in view of the
urgency and his apparent knowledge of the subject matter, and having
discussed the matter with Mr. Selbo, who in turn confirmed the position
with the Borrowers, we specifically requested that Mr. Bush (as opposed
to Allied) be approached for the purpose of producing the Valuation.
I am told by Mr. Selbo that when he called Allied to arrange for
Mr. Bush to undertake the Valuation, he was informed that Mr. Bush
was away. Despite the urgency in the transaction, we specifically waited
for Mr. Bush to return in order to undertake the Valuation. I understood
at that time that he was employed by Allied. In fact I have subsequently
discovered that he was still employed by Livemore, who were appointed
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to undertake the report on behalf of Allied as being a part of the panel of
valuers which provided services to Allied at the time."
7
What I think it is important to notice is plain from those paragraphs of
Mr. Mansell's witness statement is that it is not suggested that Mr. Mansell or
anyone else from the claimant company had any contact whatsoever directly
with Mr. Bush prior to the production of the report by Mr. Bush, and it seems
that the only communication of any sort which the claimant ever had with
Mr. Bush was, as it were, receipt of the report once it had been prepared.
8
In the particulars of claim in this action, which was commenced by a claim form
issued on 17th February 2014, what was said about the justification for the claim,
which is material for present purposes, is at para.4:
"The Defendant accepted personal responsibility for the provision and
representations contained in the Valuation upon which the Claimant
reasonably relied in making the advance of £750,000. The Valuation
was indeed extensive, and Section 1 (under the heading 'Instructions')
explained that
'This report... has been carried out by David Bush MRICS, an
independent Valuer who conforms to the requirements of the
RICS Appraisals and Valuation Standards. Unless stated to the
contrary, the report is subject to the Terms of Engagement for the
valuation of the residential property in accordance with the
(RICS) Recommendations.
This report is provided for the purpose and use of the client [and
the name '(Summit)' has been supplied in the quotation]. It
remains confidential to the client and the client's representatives.
The Valuer accepts responsibility to the client and the report has
been prepared with skill, care and diligence reasonably expected
of a competent Chartered Surveyor, but accepts no responsibility
whatsoever to any party other than the client'."
9
What, in brief, is said to be the justification for the claim at all is that Mr. Bush,
it is said, over-valued the property in question, Furzehill Place. Consequently,
the claimant advanced sums on the security of the property which it has not been
able to recover in the events which have happened, which, as I understand it, are
that there has been default in making repayment by Mr. and Mrs. Hollis, the
property has been repossessed by, I think, the first mortgagee (the claimant not
being the first mortgagee), and the proceeds of sale have proved insufficient to
produce any amount to be paid to the claimant.
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10
I return then to the valuation report. The front sheet of the valuation report
describes it as a valuation report in respect of Furzehill Place, the address of
which is then given. The next thing that appears is a logo, and the words "Allied
Surveyors" underneath the logo. There is then a photograph of what appears to
be the outside of the property in question. The second page of the report, under
the rubric "Valuation & Appraisal for Secured Lending Purposes", identifies the
subject of the valuation and the date of the inspection. It then records that the
valuation was prepared for - and the name which there appears is that of the
claimant and its address. After identification of a reference, there is this:
"Prepared by: Allied Surveyors Plc", and an address is given in Warley in
Essex. There follows an index in the report, and the first substantive page
begins with a numbered section 1, headed "Instructions". In this section one
finds these words which are material, as it seems to me, to the matters with
which this judgment is concerned: [emphasis added]
"This report has been prepared following instructions from Summit
Advances Limited [the address of which is then repeated]. It has been
carried out by David Bush, MRICS, an independent Valuer [that is
Valuer with a capital V] who conforms to the requirements of the RICS
Appraisal and Valuation Standards. Unless stated to the contrary, the
report is subject to the Terms of Engagement for the valuation of
residential property in accordance with the Royal Institution of
Chartered Surveyors recommendations.
We have in this instance been asked to provide a market valuation and
appraisal of this property for prospective secured lending purposes.
This report is provided for the purpose and use of the client. It remains
confidential to the client and client's representatives. The Valuer [with a
capital V] accepts responsibility to the client and the report has been
prepared with skill, care and diligence reasonably expected of a
competent Chartered Surveyor, but accepts no responsibility whatsoever
to any party other than the client. Any party relies upon the report at
their own risk."
11
Now, pausing at this stage, I think what the case for the claimant against
Mr. Bush as to liability essentially founds upon is these words "The Valuer
accepts responsibility to the client". "The Valuer" (with a capital V) is not an
expression which is defined for the purposes of this report. Consequently, it is
necessary, amongst other things, to consider the proper construction of this
report and the significance of the reference "The Valuer accepts responsibility to
the client". I have already drawn attention to the use of the expression "we", the
first person plural, in the second paragraph of the instructions in section 1 of the
report. There are numerous other references to the first person plural in this
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report and in the course of going through identifying relevant passages of the
report hopefully I shall identify a sufficient number of them to make good the
statement which I have just made.
12
At the end of section 1 of the report appear these words:
"We have been specifically requested to provide the following
information:"
What that information is, I think, does not require to be set out for the purposes
of this judgment.
13
At section 3.3, under the heading "Security", appears these words:
"We are of the opinion that the property provides suitable security for
loan purposes."
14
I can then, I think, move on to section 9, "Condition":
"We have not carried out a Building Survey or tested services, nor have
we inspected those parts of the property, which are covered, unexposed
or inaccessible and such parts have been assumed to be in good repair
and condition. We cannot express an opinion about or advise upon the
condition of uninspected parts and this report should not be taken as
making any implied representation or statement about such parts."
15
I can omit the next paragraph, but then appears this short paragraph:
"We would anticipate that current works will be completed over the
forth-coming 6-10 months (dependant upon the size of the on site team).
These are identified below.
We are aware of both planning and listed consents recently obtained for
the construction of an underground garage complex adjoining the
property linked to a large orangery with associated repair, refurbishment
and conversion to various outbuildings to the rear of the property."
16
Then I think I can move to a passage which immediately follows identification
of various current works:
"Our estimate of costs to complete the above mentioned works is in the
region of between £300,000-£400,000. (The figure may be higher
dependant on specification)."
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17
Section 11 is "Essential Repairs":
"It is our opinion that the majority of structural works affecting the
fabric of this property have now been largely completed. Meanwhile,
the following repairs should be undertaken as a matter of expediency as
part of the current programme of restoration to the property:-"
Again, the detail is not material.
18
I move to section 12, "Environmental Considerations":
"12.01 We have considered the question of whether the property could
be affected by contamination. However, we are not Environmental
Auditors and our inspection has been non-invasive and for valuation
purposes only. From our enquiries of Simon Hollis and from what we
noted when we attended at the property, we are not aware of any
significant contamination affecting the property or neighbouring
property, which would affect our valuation.
We are aware of a fairly recent outbreak of Foot and Mouth disease to
this part of Surrey. The threat of further outbreaks appears to have
calmed down. We would therefore not consider there to be any impact
upon value in terms of such an outbreak.
12.02 We have not carried out any investigations on past or present uses
of the property or on neighbouring land to establish whether there is any
further potential for contamination from uses or sites to the subject
property and therefore assume that none exist.”
19
Section 13 is "Town Planning & Highways":
"13.01 We understand that the current use is residential and that this
meets with appropriate planning requirements.
13.02 We are not aware of any potential future development likely to
impact negatively upon the value of this property. We have been made
aware and have seen copies of both Listed and Planning consents with
regards to the erection of an orangery - conversion of outbuildings to the
rear of the property together with [it says 'perspective', it probably means
'prospective'] construction of an underground garage complex. [I can
leave out a couple of sentences]. However, we are not in a position to
discuss this prospective value within the limitations of this exercise. ...
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13.05 To the best of our knowledge, recent flooding affecting the
property has not occurred."
20
Section 14 is "Tenure":
"14.01 Unless otherwise stated, we have assumed the title is free from
encumbrances and that Solicitors' local Searches and usual enquiries do
not reveal matters or the existence of statutory notices that would
materially affect our valuation.
14.02 We are aware of rights of way and easements involving this
property and adjoining elements of the estate. We understand that
appropriate easements and rights of way are in place.
14.03 We have not had sight of a copy of the Title Deeds, but have
however been advised by Simon Hollis that the property is Freehold
with vacant possession to be gained of the whole premises immediately,
if required."
21
Section 16 of the report describes the "Valuation Approach":
"To provide an appropriate valuation figure. We have taken note of both
the marketing and sales of country houses to the locality and to other
parts of Surrey."
22
Then section 17, "Comments":
"17.01 It is our opinion that the property remains in acceptable
condition for lending purposes and our valuation reflects the fact that
there is wear and tear to some items and that maintenance, repair and
continual upgrading are still required."
23
Then I think I can move to section 18. It says "Indiction", but possibly means
"Indication Reinstatement Costs":
"It is our opinion that the current reinstatement value for this property is
in the sum of £2,500,000."
24
Section 19 had the rubric "General Assumption & Conditions". It began, rather
puzzlingly, with para.2.6, "Scope and Content of Inspection and Report", and it
said:
"We draw attention to certain caveats and assumptions as follows.
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2.6.1 Our valuation report includes all items that are in the nature of
'landlord's fixtures'."
There was then an explanation of what that meant.
"2.6.2 We have excluded from our valuation any value attributable to
fixed and loose plant and machinery, loose tools and other chattels such
as [and various examples were then given].
2.6.4 We confirm that we have acted as independent valuers and have
no other current or presently foreseeable fee earning relationship
concerning the subject property apart from the valuation fee and have
disclosed in writing to our Client any present relationship, or
relationship within the past two years of receipt of the valuation
instructions, with any of the interested parties and any previous
involvement with the subject property.
2.6.5 In providing our valuation advice no allowance has been made for
liability for taxation which may arise on disposal, whether actual or
notional, nor does the valuation reflect the costs of acquisition or
realisation. We are not aware as to whether VAT is chargeable on a
disposal and for the purpose of this report have assumed that this would
not affect our valuation.
2.6.6 We have inspected the property as far as is reasonably necessary
for valuation purposes. [There then seem to be some words missing, but
the next sentence continues] be undertaken from standing at ground
level within the boundaries of the site and adjacent public/communal
areas and as was readily accessible with safety and without undue
difficulty including standing at the various floor levels. However, we
have not carried out a building survey of the buildings, nor have we
inspected woodwork, steelwork or other parts of the property which are
covered, unexposed or inaccessible and we are therefore unable to report
that any such parts of the property are free from defect. Our report does
not purport to express an opinion about or to advise upon the condition
of uninspected parts and should not be taken as making any implied
representation or statement about such parts. Neither have we carried
out any tests of any kind on the electrical, plumbing or other services
installed.
2.6.7 We have not undertaken any tests to confirm that deleterious,
hazardous, inherently dangerous or unsuitable materials or techniques
were used in the construction of the property or have since been
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incorporated. Therefore, we are not able to confirm that the premises
are free from such materials."
25
There is then a reference to asbestos, which is not material for present purposes.
I think we can then go to para.2.6.11:
"This report and valuation has been prepared in accordance with the
RICS Appraisal and Valuation Standards (effective 01 May 2003 and
subsequently updated)."
26
The last page of the text of the report begins with section 20, "Verification", and
this is what follows that rubric:
"The property was inspected on 18 February 2008 and the report
prepared by David Bush, MRICS who has the relevant experience and
knowledge of valuing this type of property.
We confirm that neither the firm nor Valuer [with a capital V] has a
conflict of interest in this matter. We would confirm that the
undersigned has previously undertaken valuation work in terms of this
property and nearby property."
27
There is then a signature. Beside the words "Name & Qualifications" appears
the name of Mr. Bush and his qualification as a member of the Royal Institution
of Chartered Surveyors. Then "Company" appears, and the name given is
"Allied Surveyors Plc", and the address in Warley in Essex.
28
Finally, section 21, "Confidentiality":
"This report is provided for the purposes and use of the client. It is
confidential to the client and the client's representatives. The Valuer
accepts responsibility to the client and the report has been prepared with
the skills, care and diligence reasonably expected from a competent
Chartered Surveyor, but accepts no responsibility whatsoever to any
party other than the client. [And Valuer again is with a capital V.] Any
party relies upon the report at their own risk.
Neither the whole nor any part of this report or valuation, nor any
reference thereto, may be included in any published documents, circular
or statement, nor published in any way, nor disclosed to any third party
without the prior written consent of Allied Surveyors Plc."
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29
The course of the hearing before Master Eastman, I think, was rather different
from the course of the hearing before me. Before coming to the hearing before
Master Eastman and the explanation which Master Eastman gave in his
judgment for his conclusion, I think it is convenient for me to refer to the speech
of Lord Steyn in Williams v. Natural Life Health Foods Ltd. [1998] 1 WLR 830.
Ms. Fiona Sinclair QC, who appears before me on behalf of the appellant,
Mr. Bush, and who also appeared before Master Eastman, has told me that the
focus of her submissions before Master Eastman was to rely upon what is to be
derived, in her submission, from the speech of Lord Steyn, with which all of the
other members of the House of Lords sitting on that occasion agreed, and that if
Master Eastman had applied the principles to be derived from Williams v.
Natural Life in the circumstances of the present case, submitted Miss Sinclair,
he could only have come to the conclusion that the claim of the claimant against
Mr. Bush had no realistic prospect of success and consequently summary
judgment should be entered against the claimant.
30
As I understand it, the way in which the matter was put to Master Eastman on
behalf of the claimant by Mr. Nicholas Bard, who appeared before him, as he
appears before me on behalf of the respondent to this appeal, was not so much to
rely upon the point which I have already identified and which seems to be the
only pleaded point in the particulars of claim relied upon as justifying a liability
on the part of Mr. Bush, but, rather, to seek to distinguish the decision in
Williams v. Natural Life, or, at any rate, to suggest that it was capable of being
distinguished by reference to the decision of the House of Lords in Smith v. Eric
S Bush [1990] 1 AC 831. The line of authority, as I think it was put to Master
Eastman by Mr. Bard, beginning with Smith v. Eric S Bush, has been pursued
through the decision of the Court of Appeal in Merrett v. Babb [2001] QB 1174.
31
But before coming to consider the significance of those authorities, if any, it is
appropriate to consider the speech of Lord Steyn in Williams v. Natural Life. In
my judgment, what one can see plainly expounded in that speech is the correct
approach in ordinary cases to the question of the personal liability (or not) of an
individual who is engaged in providing advice on behalf of another in
circumstances in which, if the advice was given negligently, there might be
liability by reason of the application of the principles expounded in Hedley
Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465. I begin to read in
the speech of Lord Steyn at p.833F, below the rubric "The decision of the Court
of Appeal", and because of its importance I intend to continue to read until
p.838E, immediately above the rubric "The joint tortfeasor point". He said:
"Mr. Mistlin appealed to the Court of Appeal. Only one issue was
canvassed in the Court of Appeal, namely whether the judge was entitled
to find that Mr. Mistlin was personally liable to the plaintiffs on the
basis of an assumption of responsibility. A majority (Hirst and Waite
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L.JJ.) upheld the judge's conclusion and dismissed the appeal. Hirst L.J.
said:
'in order to fix a director with personal liability, it must be shown
that he assumed personal responsibility for the negligent
misstatement made on behalf of the company. In my judgment,
having regard to the importance of the status of limited liability, a
company director is only to be held personally liable for the
company's negligent misstatements if the plaintiffs can establish
some special circumstances setting the case apart from the
ordinary; and in the case of a director of a one-man company
particular vigilance is needed, lest the protection of incorporation
should be virtually nullified. But once such special circumstances
are established, the fact of incorporation, even in the case of a
one-man company, does not preclude the establishment of
personal liability. In each case the decision is one of fact and
degree.'
Waite L.J. said, at p.154:
'where representations are made negligently by a company so as to
attract tortious liability under the principle of Hedley Byrne, the
primary liability is that of the corporate representor. In the vast
majority of cases it is also the sole liability. The law does,
however, recognise a category of case in which a director of the
representor will be fixed with personal liability for the negligent
misstatement. It is a rare category, and a severely restricted one.
If that were not so, representees could set at naught the protection
which limited liability is designed to confer on those who
incorporate their business activities. The mesh is kept fine by the
stringency of the question which the law requires to be asked: do
the circumstances, when viewed as a whole, involve an
assumption by the director of personal responsibility for the
impugned statement?'
Sir Patrick Russell gave a dissenting judgment.
The theory of the extended Hedley Byrne principle
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
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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 A.C. 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] 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. 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)...'
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 L.J. 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
N.Z.L.R. 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 tortfeaser, it is not sufficient
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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.
The practical application of the extended Hedley Byrne principle
Not surprisingly, opposing counsel approached the application of the
principle of assumption of risk from different perspectives. Counsel for
the plaintiffs concentrated in his argument on the pivotal role of
Mr. Mistlin in the affairs of the company. Counsel for Mr. Mistlin
concentrated on the absence of direct dealings between the plaintiffs and
Mr. Mistlin. The practical application of the extended Hedley Byrne
principle was not agreed. Before I turn to the facts of the present case it
is therefore necessary to explore this aspect. Two matters require
consideration. First, there is the approach to be adopted as to what may
in law amount to an assumption of risk. This point was elucidated in
Henderson's case by Lord Goff of Chieveley. He observed, at p.181:
'especially in a context concerned with a liability which may arise
under a contract or in a situation "equivalent to contract," it must
be expected that an objective test will be applied when asking the
question whether, in a particular case, responsibility should be
held to have been assumed by the defendant to the plaintiff: ...'
The touchstone of liability is not the state of mind of the defendant. An
objective test means that the primary focus must be on things said or
done by the defendant or on his behalf in dealings with the plaintiff.
Obviously, the impact of what a defendant says or does must be judged
in the light of the relevant contextual scene. Subject to this qualification
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. Sometimes such an issue arises in a simple bilateral
relationship. In the present case a triangular position is under
consideration: the prospective franchisees, the franchisor company, and
the director. 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 that
the director assumed personal responsibility towards the prospective
franchisees. An example of such a case being established is Fairline
Shipping Corporation v. Adamson [1975] Q.B. 180. The plaintiffs sued
the defendant, a director of a warehousing company, for the negligent
storage of perishable goods. The contract was between the plaintiff and
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the company. But Kerr J. held that the director was personally liable.
That conclusion was possible because the director wrote to the customer,
and rendered an invoice, creating the clear impression that he was
personally answerable for the services. If he had chosen to write on
company notepaper, and rendered an invoice on behalf of the company,
the necessary factual foundation for finding an assumption of risk would
have been absent. A case on the other side of the line is Trevor Ivory
Ltd. v. Anderson [the citation for which I have already given]. This case
concerned negligent advice given by a one-man company to a
commercial fruit grower. Despite proper application of the spray it
killed the grower's fruit crop. The company was found liable in contract
and tort. The question was whether the beneficial owner and director of
the company was personally liable. The plaintiff had undoubtedly relied
on the expertise of the director in contracting with the company. The
New Zealand Court of Appeal unanimously concluded that the
defendant was not personally liable. McGechan J., who analysed the
evidence in detail, said, at p. 532, that there was merely 'routine
involvement' by a director for and through his company. He said that
there 'was no singular feature which would justify belief that Mr. Ivory
was accepting a personal commitment, as opposed to the known
company obligation.' That was the basis of the decision of the Court of
Appeal. In his 1997 Hamlyn Lecture on 'Turning Points of the Common
Law,' Lord Cooke of Thorndon [I interpose that Lord Cooke was of
course President Cooke at the time of the hearing in the New Zealand
Court of Appeal of Trevor Ivory Ltd. v. Anderson] commented that if the
plaintiff in Trevor Ivory Ltd. v. Anderson 'had reasonably thought that it
was dealing with an individual, the result might have been different:' see
'A Real Thing, Taking Salomon Further' [then there is a reference to
where that can be found]. Such a finding would have required evidence
of statements or conduct crossing the line which conveyed to the
plaintiff that the defendant was assuming personal liability.
That brings me to reliance by the plaintiff upon the assumption of
personal responsibility. If reliance is not proved, it is not established
that the assumption of personal responsibility had causative effect. In
his Hamlyn Lecture Lord Cooke of Thorndon referred to two judgments
of La Forest J. in the Canadian Supreme Court on the element of
reliance. In London Drugs Ltd. v. Kuehne & Nagel International
Limited [1992] 3 S.C.R. 299, 387 La Forest J. emphasised in the context
of an issue of personal liability of a company's employee the distinction
between 'mere reliance in fact and reasonable reliance on the employee's
pocket-book.' [I think I can take judicial notice of the fact that what in
Canada seems to be called a pocket-book is in England called a wallet.]
The second case is Edgeworth Construction Ltd. v. M. D. Lea &
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Associates Ltd. [1993] 3 S.C.R. 206. The plaintiff company had made a
successful bid for a road building contract with a province. The
plaintiffs allegedly lost money as a result of errors in the specifications
and drawings prepared for the province by an engineering company.
The Supreme Court held that the plaintiffs had a prima facie cause of
action against the engineering company for negligent misrepresentation.
I do not pause to consider that part of the decision. But the Supreme
Court unanimously held that by affixing their seals to the drawing the
individual engineers did not assume personal responsibility to the
plaintiffs. La Forest J. said, at p. 212:
'The situation of the individual engineers is quite different. While
they may, in one sense, have expected that persons in the position
of the appellant would rely on their work, they would expect that
the appellant would place reliance on their firm's pocketbook and
not theirs for indemnification; see London Drugs, supra, at pp.
386-387. Looked at the other way, the appellant could not
reasonably rely for indemnification on the individual engineers. It
would have to show that it was relying on the particular expertise
of an individual engineer without regard to the corporate character
of the engineering firm. It would seem quite unrealistic, as my
colleague observes, to hold that the mere presence of an individual
engineer's seal was sufficient indication of personal reliance (or
for that matter voluntary assumption of risk).'
This reasoning is instructive. 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. To that extent I regard what La Forest J. said in
Edgeworth's case as consistent with English law.
Academic criticism of the principle of assumption of risk
Distinguished academic writers have criticised the principle of
assumption of responsibility as often resting on a fiction used to justify a
conclusion that a duty of care exists [there is then reference to various
criticisms which I need not read into this judgment.] For this criticism
two cases which were decided on special facts are cited: Smith v. Eric S.
Bush [the citation number of which I have already given]; White v. Jones
[1995] 2 A.C. 207. In my view the general criticism is overstated.
Coherence must sometimes yield to practical justice. In any event, the
restricted conception of contract in English law, resulting from the
combined effect of the principles of consideration and privity of
contract, was the backcloth against which Hedley Byrne was decided and
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the principle developed in Henderson's case. In The Pioneer Container
[1994] 2 A.C. 324, 335, Lord Goff of Chieveley (giving the judgment of
the Privy Council in a Hong Kong appeal) said that it was open to
question how long the principles of consideration and privity of contract
will continue to be maintained. It may become necessary for the House
of Lords to re-examine the principles of consideration and privity of
contract. But while the present structure of English contract law remains
intact the law of tort, as the general law, has to fulfil an essential gapfilling role. In these circumstances there was, and is, no better
rationalisation for the relevant head of tort liability than assumption of
responsibility. Returning to the particular question before the House 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 and that there was the necessary reliance. There is
nothing fictional about this species of liability in tort.
Applying the principle to the facts
Mr. Mistlin owned and controlled the company. The company held
itself out as having the expertise to provide reliable advice to
franchisees. The brochure made clear that this expertise derived from
Mr. Mistlin's experience in the operation of the Salisbury shop. In my
view these circumstances were insufficient to make Mr. Mistlin
personally liable to the plaintiffs. Stripped to essentials the reasons of
Langley J., the reasons of the majority in the Court of Appeal and the
arguments of counsel for the plaintiffs can be considered under two
headings. First, it is said that the terms of the brochure, and in particular
its description of the role of Mr. Mistlin, are sufficient to amount to an
assumption of responsibility by Mr. Mistlin. In his dissenting judgment
[and reference was there given to where it could be found)] Sir Patrick
Russell rightly pointed out that in a small one-man company 'the
managing director will almost inevitably be the one possessed of
qualities essential to the functioning of the company.' By itself this
factor does not convey that the managing director is willing to be
personally answerable to the customers of the company. Secondly, great
emphasis was placed on the fact that it was made clear to the franchisees
that Mr. Mistlin's expertise derived from his experience in running the
Salisbury shop for his own account. Hirst L.J., at p.153 summarised the
point by saying that 'the relevant knowledge and experience was entirely
his qua Mr. Mistlin, and not his qua director.' The point will simply not
bear the weight put on it. Postulate a food expert who over ten years
gains experience in advising customers on his own account. Then he
incorporates his business as a company and he so advises his customers.
Surely, it cannot be right to say that in the new situation his earlier
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experience on his own account is indicative of an assumption of personal
responsibility towards his customers. In the present case there were no
personal dealings between Mr. Mistlin and the plaintiffs. There were no
exchanges or conduct crossing the line which could have conveyed to
the plaintiffs that Mr. Mistlin was willing to assume personal
responsibility to them. Contrary to the submissions of counsel for the
plaintiffs, I am also satisfied that there was not even evidence that the
plaintiffs believed that Mr. Mistlin was undertaking personal
responsibility to them. Certainly, there was nothing in the circumstances
to show that the plaintiffs could reasonably have looked to Mr. Mistlin
for indemnification of any loss. For these reasons I would reject the
principal argument of counsel for the plaintiffs."
32
Now, it is plain, in my judgment, that the principles to be applied other than in
the exceptional cases which Smith v. Bush and White v. Jones amount to, are
these. An individual who is acting as an agent, whether or not an employee, for
another, incurs no personal liability to a claimant on the basis of any negligent
advice which is given by that individual to the claimant unless that individual
has, by words or conduct, indicated to the claimant that he or she is prepared to
accept personal responsibility in the event that the advice given was negligent,
and it is reasonable in the circumstances for the claimant to rely upon whatever
indications there may have been. Moreover, as a matter of evidence, it must be
demonstrated that the claimant did in fact rely upon the personal liability or the
indication of personal liability being accepted on the part of the individual in
entering into the relevant transaction.
33
Smith v. Bush, which was heard in the House of Lords, together with another
case, Harris v. Wyre Forest District Council, was a very peculiar and individual
case. It was a case in which it was sought to hold liable, in the one case a
company, in the other case an individual, who had valued a modest residential
property for mortgage purposes. The valuations were said to have been
negligent, as a result of which the valuations were in excess of what would have
been proper valuations. However, bearing in mind the modest value of the
property in each case, the purchaser - in each case an individual, or possibly a
pair of individuals, of modest means - having been required to pay for the cost
of the valuation which was required by a prospective lender, did not go to the
additional expense of instructing separately a valuation on their own behalf or a
structural survey on their own behalf. Instead, as is explained in particular in
the speech of Lord Griffiths in the House of Lords, the prospective purchasers
relied upon either sight of the valuation which was satisfactory to justify the
amount of the loan that they were seeking, or, alternatively, if they did not
actually see the valuation report, simply concluded from the fact that there was
an offer of loan that there must have been a satisfactory valuation report, and
then proceeded to purchase the property.
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34
It is immediately obvious that to contemplate the possibility that a valuer, whose
identity was unknown to the claimant, whose valuation may have been unknown
to the defendant, and whose valuation was only relied upon perhaps in the sense
of not being a negative indication in relation to the contemplated transaction, is
a very long way away from the requirements needing to be satisfied in
accordance with the exposition of Lord Steyn in Williams v. Natural Life from
which I have quoted extensively.
35
White v. Jones was a solicitor's case, not a valuer's case, but, again, a very
individual type of case in that, as I recollect, the plaintiffs in that case were
disappointed beneficiaries who had failed to obtain legacies intended by the
deceased, who had instructed solicitors to prepare a will the object of which was
to confer legacies upon the claimants.
36
As I have said, the way in which the matter unfolded before Master Eastman
was rather different from the way in which it has unfolded before me. It
appears that Mr. Bard sought to persuade Master Eastman that the principles,
such as they are, to be derived from Smith v. Bush and its later application in
Merrett v. Babb were at least capable of being extended to apply to a company
such as the claimant, a mortgage lender, operating in what I think is the
secondary or possibly tertiary area of mortgage lending, in order to create in
favour of such a financial institution what in effect is an insurer of last resort in
the form of the valuer. The argument before Master Eastman I think did involve
Ms. Sinclair making submissions to Master Eastman to the effect that there were
a number of contraindications to the principle being extended in any such
direction. In particular there was reference, as I understand it, to the decision of
the Court of Appeal in Beaumont v. Humberts [1990] 2 EGLR 166, and also to
Bradford & Bingley plc v. Hayes, which is not reported but a copy of the
judgment of McKinnon J was put before Master Eastman and has been put
before me. Again, Miss Sinclair, I think, showed Master Eastman a recent
judgment of Akenhead J, Hunt v. Optima (Cambridge) Ltd. [2013] EWHC 681
(TCC), in which Akenhead J again reached a conclusion, in a case which had
some similarities to the present case, that an individual surveyor had not
assumed a duty of care to the claimants. The circumstances were somewhat
different from the present case in that the process of certification in that case
related to completion of flats under construction and what the relevant surveyor,
Mr. Egford, had done was to certify that works had been completed in
circumstances in which it was said that that had not happened.
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37
With that explanation, I come to the judgment of Master Eastman. His
judgment is very short. It is perhaps not inappropriate, although I could
summarise it, for me to read the whole of it:
"1 This is an application for summary judgment brought by a defendant
in a professional negligence claim. The claimant, Summit Advances,
was considering advancing funds toward the short term financing of the
purchase of a large and attractive property in Surrey, if you like that sort
of thing. The defendant is a valuer, a qualified surveyor, who was
employed by a firm called [it says 'Live Hall', but it must mean
'Livemore'] Partnership LLP, who are part of a greater group called
Allied Surveyors PLC. He provided a valuation at very short notice in
respect of a property which he had valued before and in a geographical
area where he had significant previous experience of valuing properties.
2 As I have indicated, this was a summary judgment application. In
very helpful skeleton arguments prepared by both counsel before me,
there is no real dispute as what the appropriate test I should apply in
such an application is. Purely because it happens to be most
conveniently to hand, I am going to quote a passage from Mr. Bard's
skeleton argument where he cites paragraph 24.2.3 of the White Book as
being the test, but I doubt whether Miss Sinclair will argue with the test.
[It was then set out, and I need not repeat it for present purposes.] This,
because of the late hour, is going to of necessity be a short extempore
judgment.
3 I have been referred to a number of helpful authorities in the context
of a case of this sort. We start of course with Hedley Byrne and the
concept of the assumption of responsibility for financial consequences of
professional advice. We then of course have the Williams case to which
I have been referred, namely Williams v. Natural Life Health Foods
1998 1 WLR. Then we have a string of authorities: Harris v. Wild
Forest [it says; Wyre Forest is accurate], Smith v. Bush and Merrett v.
Babb. Miss Sinclair, on behalf of the defendant, argues that this is an
area of law where it is clear that what is said in the last three cases to
which I have referred, namely Harris, Smith and Merrett relates to
specific sets of circumstances appertaining to persons of modest means
relying on the advice of professionals in circumstances where they are
unlikely to be getting their own advice. Mr. Bard argues that this is
overall an evolving area of law and a lot of the dicta which is cited in
those cases is not actually quite so fact specific. It is not quite so limited
to the circumstances as put by Miss Sinclair.
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4 The facts of this case, which seem to me pertinent in exercising my
discretion this afternoon and deciding whether or not this action should
be struck out, are as follows. I should preface that by saying that
Mr. Bard argues and I do not think Miss Sinclair would totally disagree
that all of these cases are very fact specific. For the purposes of today's
argument I have to accept and do, albeit that should this matter go off to
a trial others may not, that Mr. Mansell in his witness statement gives an
accurate account when he says that in giving the instructions the
claimant did, which ultimately ended up at Mr. Bush's feet, it was
Mr. Bush, and Mr. Bush only, that the claimant wanted professional
services from because of the experience he has to which I have referred.
That would account perhaps for the verification paragraph at the very
end of the report which he did provide at breakneck speed as he was
required to do because paragraph 20 of the report states:
'The property was inspected on 18th February 2008 and the report
prepared by David Bush MRICS, who has the relevant experience
and knowledge of valuing this type of property. We confirm that
neither the firm nor valuer has a conflict of interest in this matter.
We could confirm that the undersigned has previously undertaken
valuation work in terms of this property and nearby property.'
I doubt that it is a standard term at the end of every Allied Surveyor's
report. It goes back, or at least arguably goes back, to the nature and
precise nature of the instruction which Mr. Mansell says was given.
5 Looking at all the authorities, I am not satisfied that it could be argued
that this is a fanciful or imaginary case. The authorise [I think it must
mean 'authorities'] are not so clear cut, and are themselves very fact
dependent, and do not in my mind preclude the possibility of personal
liability in the factual scenario of this case, where the advice sought was
of the one man and him alone. I am not saying that on the authorities
I have seen it is the strongest case I have ever seen. It may well be that
Mr. Bard will have something of an uphill struggle at trial, but I cannot
say that there is no realistic prospect of success on the information
before me this afternoon. In those circumstances I conclude that this
application must fail."
38
Miss Sinclair in her grounds of appeal identified seven major grounds and a
number of minor grounds within some of those major grounds. I do not intend
any disrespect to her in summarising the points made as really coming to this:
Master Eastman failed to appreciate that the law in this area is fixed in the vast
majority of cases, and fixed by the decision of the House of Lords in Williams v.
Natural Life Health Foods Ltd.; that Smith v. Bush and the other cases which he
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was shown and to which he referred - actually only one other case, Merrett v.
Babb, in which Smith v. Bush was applied - were very individual cases
dependent upon, I say peculiar circumstances, because they are circumstances
which, although not uncommon, refer to a precise and readily-identifiable type
of case. The learned Master, submitted Ms. Sinclair, in effect misled himself by
failing to understand that Smith v. Bush and the other case, Merrett v. Babb,
particularly relied upon, were exceptions to the basic principles in Williams v.
Natural Life Health Foods Ltd., and if Master Eastman had correctly appreciated
the significance of the guidance of Lord Steyn in Williams v. Natural Life
Health Foods Ltd, he could only have come to the conclusion that the
application for summary judgment must succeed.
39
Now, I am concerned on the hearing of this appeal with whether I am satisfied,
having regard to the provisions of Part 52.11(3) of the Civil Procedure Rules,
that the decision of Master Eastman was wrong or was unjust because of the
serious procedural or other irregularity in the proceedings in the lower court.
Ms. Sinclair submits simply that Master Eastman was wrong, and she submits
that in the event that I am satisfied that Master Eastman's decision was wrong,
then I should exercise my own discretion in accordance with the provisions of
Part 22.4 of the Civil Procedure Rules and, she submits, grant summary
judgment in favour of the defendant.
40
Now, a consideration of whether the decision of Master Eastman was wrong
actually involves two processes potentially. It is possible, at any rate
theoretically, that Master Eastman's actual order could be right, notwithstanding
that the process of reasoning which he explains has led him to that conclusion
was wrong. In the circumstances of the present case, it is, I think, quite clear
that Master Eastman did not address, as he ought to have addressed, the issues
before him. I will explain why. He should have followed the decision in
Williams and not have taken any account of Smith v. Eric S Bush or Merrett v.
Babb. However, if Master Eastman had considered the guidance given by Lord
Steyn in Williams, he would still have had to perform an exercise - which,
because he did not, I must - of considering the only communication between
Mr. Bush and the claimant, i.e. the valuation report, in order to see whether, as
Mr. Bard submitted, within the valuation report one finds words which make it
plain that Mr. Bush was accepting personal responsibility to the claimant for the
valuation and the report. That is why, as I have already indicated, before me
great emphasis was placed upon the words "The Valuer accepts responsibility to
the client".
41
I was asked by Mr. Bard to interpret the reference to "The Valuer" as referring,
and referring only, to Mr. Bush as an individual. In my judgment, that
construction of the report, having regard to the guidance of Lord Hoffmann in
Investors Compensation Scheme v. West Bromwich Building Society, is not
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permissible. The valuation report is littered, as I hope I have demonstrated, with
references in the first person plural, and those references cannot possibly refer to
Mr. Bush as an individual. If the report had said, where "we" appears "I"; if it
had said where "our" appears "my", then there might be substance in these
submissions which have been made to me. But the report is, on its face, a report
from Allied Surveyors plc. That company is identified, as I have said, as the
entity by which the report was prepared. That entity is identified below the
signature of Mr. Bush at the end of the text of the report as the company which
is concerned in providing the report. In my judgment, as a matter simply of
construction, the expression "The Valuer", not being defined, is not capable of
being interpreted as referring to Mr. Bush as an individual in contradistinction to
Allied Surveyors plc. If, as to which there is actually no evidence because
Mr. Mansell's witness statement focused not on reading the report, interpreting it
and forming a view, but rather upon what he was told in advance of getting it by
Mr. Selbo was the particular benefit of getting a report from Mr. Bush -- if
Mr. Mansell said that he had relied or the claimant had relied on the report as an
indication that Mr. Bush accepted personal responsibility for the valuation and
the report, then that, in my judgment, would not have been reasonable. It is
wildly improbable, in my judgment, that an individual who is employed would
accept a liability to a financial institution, possibly for hundreds of thousands of
pounds. Anyone who read the report objectively must, I think, have immediately
appreciated that this was a report which was being put forward as a report of
Allied Surveyors plc. If there was any negligence in relation to the preparation
of the report or reaching a conclusion as to the appropriate valuation, then Allied
Surveyors plc would be answerable and not Mr. Bush, the individual who
assessed the value of the property and wrote the report.
42
So, for those reasons I am satisfied that not merely did Master Eastman
approach the questions before him on an incorrect basis but that also the
conclusion which he reached, which was that the summary judgment application
should be dismissed, was wrong. I intend to substitute for the learned Master's
order an order dismissing the action on the grounds that the claimant has no
reasonable prospects of success on the claim.
LATER
43
Following my decision to allow the appeal and to enter summary judgment in
favour of the defendant, Mr. Bush, the question arises as to the appropriate order
as to costs. It is accepted by Mr. Bard on behalf of the respondent that it is
appropriate that the respondent should pay both the costs of the appeal and the
costs of the action, and should repay the costs awarded against Mr. Bush by
Master Eastman in the amount of £10,000. It is, I think, accepted that it is
within my discretion, at any rate, to decide whether or not to assess the costs that
I am being invited to award summarily. Mr. Bard did suggest that, because of
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the size of the sums that I am being asked to award, I should not, but should
allow the matter to go forward to a detailed assessment. That is not the modern
practice in relation to a hearing which has lasted less than one day, and there are
no special circumstances of the present case which prompt me to think that
I should not follow what is now the usual practice.
44
The amounts that I am being invited to consider awarding are inflated by the
amount of Value Added Tax in each instance because Mr. Bush is an individual
and is not able to recover the Value Added Tax. That has the consequence, in
broad terms, of increasing the costs that I am being invited to award by 20%.
45
Mr. Bush, so far as I know, is still an employed surveyor. Certainly at the time
of the events giving rise to this action he was an employed surveyor. The claim
against him was potentially for £1.5 million, together no doubt, if the claim had
succeeded, with a very substantial amount of costs. Consequently, it was
appropriate, as it seems to me, for Mr. Bush to incur an appropriate level of
costs to ensure that his case was properly put and properly considered. I am told
that the circumstances of the present case, which were, in my experience,
unusual and which do not seem to have been considered in any other decision of
this court - certainly my attention was not drawn to any other case in which a
claim of the sort preferred against Mr. Bush had succeeded - meant that it was,
I think, appropriate for leading counsel to be instructed on behalf of Mr. Bush,
and Ms. Sinclair was instructed on behalf of Mr. Bush. There has been a
suggestion by Mr. Bard on behalf of the respondent that Miss Sinclair's fees
were inappropriately high. I am not persuaded that that is so. Miss Sinclair's
fees were, first of all, for the hearing before Master Eastman; secondly, for the
hearing before me, but in advance of the hearing before me and no doubt in
advance of a decision being made to pursue the appeal, she gave advice. It
seems to me that it was necessary for that advice to be given because the course
which matters took before Master Eastman had probably been from Mr. Bush's
point of view, surprising in that the judgment of Master Eastman explaining the
reasons for his decision was both brief and, as I have explained in my judgment,
not correctly focused.
46
The other points that I am invited to consider are, first of all, whether it was
appropriate for Miss Sinclair's instructing solicitor to travel to the appeal, and
indeed the hearing before Master Eastman, I think, bearing in mind that he
comes from Nottingham. That seems to me in the circumstances to have been
entirely appropriate. No criticism is made of the hourly rates of Mr. Carle,
Miss Sinclair's instructing solicitor. It has been suggested that the amount of
time that Mr. Carle has recorded in the statements of costs he has spent dealing
with Mr. Bush himself is excessive. That seems to me to be unrealistic and
ungenerous. Here is an individual who, years after the event, receives a claim
form looking to him to pay, as I have said, something of the order £1.5 million,
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together, no doubt, with a very substantial chunk of costs. It is wholly
unrealistic to expect this court to treat an individual who receives a substantial
claim in those sort of circumstances as if he was a FTSE 100 company, where
no doubt anxieties and concerns that individuals feel do not need to be taken
into account. I am not persuaded that the time which Mr. Carle has recorded he
spent on attending Mr. Bush is in any way inappropriate.
47
What I am going to do is to assess the costs of the action up to the conclusion of
the hearing before Master Eastman at £20,000 plus VAT, so that is £24,000
including VAT, and I am going to assess the costs of the hearing before me at
exactly the same sum. So that is a total of £48,000, of which £8,000 is simply
the Value Added Tax.
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