Professional Negligence Solicitor, Lee Dawkins, reports on surveyors negligence for domestic and commercial surveys and refers to a past surveyors negligence claim.

Where there is a contract between the parties, it is fairly easy to see who you owe a duty of care to. A contracts with B, they owe each other a duty of care. But it is not quite so simple where there is not a specific contract between the parties.

In the 1989 case of Smith –v- Bush, the Courts had to look specifically at this type of situation. Mrs Smith was in the process of purchasing a property with the aid of a mortgage from Abbey National. Abbey National insisted that a survey be undertaken and they instructed Eric S Bush to undertake the work, Mrs Smith reimbursing Abbey National Mr Bush’s fees. Mr Bush declared that the property was free from defect but subsequently, the chimney fell down crashing through the roof and causing considerable damage. Mrs Smith brought proceedings against Mr Bush but he put up two arguments. Firstly, he did not have a contract with Mrs Smith; secondly, there was an exclusion of liability clause in his terms and conditions of business.

The House of Lords dismissed Mr Bush’s argument. They stated that it was reasonably foreseeable that Mrs Smith would rely on the report. Further, this was a relatively small scale purchase of a residential property and it would be unreasonable to expect Mrs Smith to obtain her own survey. Mr Bush had to pay up.

But what happens when the purchase is of a commercial property? Would the surveyor with all his exclusion clauses, still be liable?

This was considered in the 2010 case of Scullion –v- Bank of Scotland.

Mr Scullion, through a property broker, decided in 2002 to purchase a buy-to-let flat with the aid of a mortgage. The property was being marketed at £353,000 – small scale according to the Court. The broker arranged that Mr Andrew Colley, surveyor, should prepare a mortgage valuation and provide an indication of the likely rental income. Mr Colley (whose business was subsequently taken over by Bank of Scotland), confirmed that the value of the property was indeed £353,000 and would comfortably achieve a monthly rental income of £2,000. The valuation was addressed to the brokers and contained the usual exclusion clauses. Mr Scullion went ahead and purchased.

Within a very short space of time, he realised that the rental value was considerably less than that proposed by Mr Colley. At its absolute best, he could obtain £1,100 which, given that the mortgage repayments were in excess of £1,400, soon proved to be a burden on Mr Scullion. Four years after purchase, he had no choice but to sell the property. He achieved a mere £260,000 for it. He decided to sue. Bank of Scotland defended.

The thrust of the Bank’s argument was that Smith –v- Bush could not apply as this was a commercial investment, not a residential property. As Mr Colley’s contract had been with the broker, Mr Scullion could not rely on it. They relied on a Scottish case – Wilson –v- DM Hall & Sons 2005 – where a property developer stated that his bank’s surveyor owed a duty of care. In that claim, the Court agreed that as the investment was clearly a commercial transaction, Mr Wilson should have sought advice from his own surveyor rather than on advisor who was trying to ascertain the adequacy of the bank’s security.

The first Court in Scullion did not agree. The Judge stated that although this was a commercial transaction, it was relatively low value and it would be unreasonable to expect in those circumstances, that the investor should obtain his own survey. The surveyor should have realised that Mr Scullion would have relied on the report.

The result of this case would clearly have had a profound effect for surveyors. Advice was being given to them to ensure that they were clear as to who was instructing them and importantly, who would rely on the report. Secondly, if there were any exclusion clauses, they should be very careful about drawing attention to them.

Bank of Scotland were not happy about the outcome and so appealed. On 17th June 2011, the Court of Appeal reversed the first instance decision. They took up the Bank of Scotland argument that this was a commercial transaction and that it was not “sufficiently clear….that Mr Scullion would rely on its report rather than obtaining his own advice.” Further, “it was not just and equitable that Colleys should be liable to Mr Scullion because the transaction was commercial in nature.” In short, Colleys did not owe him a duty of care.

At the moment, it is not known whether Mr Scullion will appeal. It seems a bit of a body blow to him: he was an individual who was looking to invest some spare cash, not a large property investment company who enter into the trade on a regular basis. In the latter instance, once can readily expect them to obtain their own expert advice but not an individual who is probably setting up his pension policy.

We will have to wait and see the outcome.