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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Bank Of Scotland v Messrs Fuller Peiser [2001] ScotCS 261 (13 November 2001) URL: http://www.bailii.org/scot/cases/ScotCS/2001/261.html Cite as: [2001] ScotCS 261, 2002 SCLR 255

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[1] So far as pertaining to the issue discussed in debate in this action, the facts averred in the case are within relatively short compass and largely not disputed.

[2] The defenders are a firm of property consultants and surveyors. In 1995 they were instructed by a Mrs H P Mackay to provide a valuation of an hotel in Berwickshire, the purchase of which Mrs Mackay then had under consideration. In connection with her proposed acquisition and operation of the hotel, Mrs Mackay, in August 1995, approached the pursuers at their Newtown St Boswells branch with a view to obtaining a loan from them. The pursuers aver that it was not their practice to advance money for such purposes in the absence of a satisfactory survey report. On 2 November 1995 Mrs Mackay had a meeting with the pursuers' branch manager in Newtown St Boswells at which meeting she produced various documents which the pursuers had requested of her in connection with her application. Those documents did not include the survey report which she had been asked to obtain. Mrs Mackay told the branch manager, a Mr Mackie, that she had instructed the defenders who by that stage had surveyed the hotel but had not yet provided her with a report. What then occurred on 2 November 1995 is averred by the pursuers as follows:-

A hard copy of the valuation certificate and the full terms of the report were subsequently received by Mr Mackie. It is averred by the pursuers that the defenders' report accompanied Mrs Mackay's application for an overdraft which was sent to the pursuers' UK Banking East Credit Department. It is further averred that on 29 November 1995 the pursuers offered Mrs Mackay an overdraft facility in the sum of £120,000, a condition being that they be given a standard security over the hotel. It appears that the pursuers' offer of loan was accepted by Mrs Mackay who bought the hotel, granted a standard security over it in the pursuers' favour, and began trading. It further appears that, put shortly, the trading venture was not successful. On 2 December 1997 Mrs Mackay executed a trust deed for behoof of her creditors. The pursuers then called up the standard security and in exercise of their powers under the standard security proceeded to sell the hotel. It is averred that on that sale the hotel realised less than the values placed on the hotel by the defenders in their 1995 valuation.

[3] Put briefly, the pursuers allege that in valuing the subjects at the level stated in their report in 1995 the defenders were negligent and that a reasonably competent surveyor exercising ordinary care would have valued the property and business at a much lower level. In consequence of that alleged negligent valuation the pursuers claim to have suffered loss. In their pleadings the defenders actively dispute the allegation of any professional failing in their survey and valuation of the hotel but neither the relevance - nor of course the factual accuracy - of those allegations of professional negligence arise for present consideration. The essential issue debated was whether there existed a duty of care owed by the defenders to the pursuers.

[4] Certain terms of the defenders' report are highly material to that question. As already indicated, the defenders were instructed directly by Mrs Mackay, the intending purchaser, and their report is addressed to her, at her then address in northern Northumberland. The report sets out two valuations, namely (a) the "open market capital value" and (b) the "value in the event of default". The text which follows thereafter is in these terms:-

It is accepted that what has just been set out was included not only in the documentation transmitted to the UK Banking East Credit Department but also in that transmitted by fax to the branch manager in Newtown St Boswells on the occasion of his meeting with Mrs Mackay on 2 November 1995.

[5] In submitting that the facts averred by the pursuers did not relevantly set out the existence of a duty of care owed by the defenders to the pursuers, Mr Ferguson, who appeared for the defenders, began by reference to the three-fold test of liability for negligent statements or advice set out in Caparo Industries PLC v Dickman [1990] 2 A.C.605, which test had also been recognised in Scotland in Gibson v Orr 1999 S.C.420. For his part, Mr Creally, who appeared for the pursuers, readily acknowledged the applicability of the three-fold criteria described in Caparo which may be shortly listed as - "foreseeability"; "proximity"; and "just and reasonable". It was equally accepted by both counsel that no point arose respecting the first prong of the tridental test, there being no dispute that if the Report on the value of the hotel had been compiled without proper care and if the Bank - the pursuers - could properly be seen as entitled to act in reliance on the Report, it was reasonably foreseeable that the Bank might suffer loss of the kind claimed by them. The discussion, in so far as relating to the Caparo test, thus turned on the second and third prongs of "proximity" and "just and reasonable".

[6] In regard to proximity, counsel for the defenders submitted that to satisfy that requirement it was necessary not only that the defending party in the litigation knew that his report would be communicated to the pursuing party, either as an individual or a member of a limited class, and for a particular transaction or class of transaction but also that the pursuing party would be very likely to rely on the statement in question. In relation to that proposition, which was not really disputed by Mr Creally, counsel for the defenders referred particularly to the speeches, in Caparo, of Lord Bridge, 619-21; Lord Oliver, 638-641 and Lord Jauncey, 660-661. Counsel for the defenders argued that in the present case a relationship of proximity was not relevantly made out on the averments in the case.

[7] As a first submission Mr Ferguson pointed to the averments of the pursuers which, he said, simply indicated that the report was sent to the Bank because the client, Mrs Mackay, required it for the purposes of her application for a loan. It was merely something which she required in order to complete her application form. It was not averred that the report was required in order that the Bank be satisfied as to its security. It was not indeed averred that the defenders were advised of whether any loan from the Bank would be a secured loan and there was no reason why the defenders should think that the Bank would rely on the report for their own purposes and proceed without seeking independent advice.

[8] Secondly, and perhaps more fundamentally, counsel for the defenders submitted that the element of proximity desiderated in the Caparo test was negatived by the inclusion in the report of the express statements that its authors "accepted no responsibility whatsoever to any party other than the client [Mrs Mackay]" and that any such party "relies upon the Report at their own risk". Adopting the shorthand expression used by both counsel at the debate, I shall refer to those statements as "the Disclaimer". Counsel for the defenders went on to say that such a disclaimer could prevent the arising of a duty of care either because it negatived any willingness on the part of the maker of the statement to assume responsibility or because it rendered unforeseeable reliance by the reader on the terms of the statement. cf Clerk & Lindsell on Torts, (18^th Ed.) para.8-14.

[9] It was, said counsel, possible to detect two approaches to disclaimers in this context. One was to consider first whether, in the absence of the disclaimer, a duty of care arose and, if so, thereafter to consider whether liability for breach were excluded. That approached appeared to have been favoured by Lord Griffiths in Smith v Eric S Bush [1990] 1 A.C.831 and also, at first instance, in Omega Trust Co Ltd and Banque Finindus v Wright, Son & Pepper [1997] PNLR 424. The other approach was to view the presence of the disclaimer as a constituent element in considering whether any duty of care arose at all - see Hedley Byrne & Co Ltd v Heller & Partners [1964] A.C.465; McCullagh v Lane Fox & Partners Ltd [1996] PNLR 205; First National Commercial Bank plc v Locksleys [1997] PNLR and the views expressed in Jackson & Powell on Professional Negligence para.1-127. Of the two approaches counsel for the defenders advocated the latter as the more sound. The pursuers were aware from the outset of the existence of the disclaimer, which was not an uncommon one. They must therefore be taken to be aware that the defenders were not assuming any responsibility towards them. Conversely, from the defenders' viewpoint it was not foreseeable that the Bank would rely on their report to secure its own legal position.

[10] Counsel for the defenders further submitted that it was not fair, just and reasonable to impose a duty of care in the present case. In that regard counsel referred to the considerations discussed in Smith v Bush. Much of what was to be said in regard to the third branch of the Caparo test overlapped with the considerations of the requirement of reasonableness under the Unfair Contract Terms Act 1977 ["UCTA"]. Mr Ferguson pointed out that in Smith v Bush the Court had been concerned with the relationship of lender and surveyor on the one hand and the purchasers of modest dwellinghouses on the other in circumstances in which the lender was required by statute to obtain a survey, the cost of which was paid by the eventual purchaser. There were particular policy issues involved respecting that class of property and in their speeches the members of the House of Lords participating in the decision had expressly confined themselves to such transactions, involving purchases of houses of very modest value. (854F; 859G; 865C). In the present case, the transaction was a commercial one. The disclaimer was clearly stated. It was accepted by the pursuers that their bargaining powers were at least equal to those of the defenders. They were as well able to bear the risk as the defenders, or their insurers. It was accepted by the pursuers that they were under no financial or other constraint preventing them from obtaining their own survey report or from asking that the defenders advise them directly (for which the defenders would be entitled to charge a fee). In a commercial context, a valuer was also entitled to stipulate that he know his client and know the party to whom his responsibility is to be undertaken - cf Omega Trust Co Ltd.

[11] In so far as the pursuers sought to invoke UCTA section 16(1)(b), similar considerations applied with the result that the defenders were not disabled from relying upon the disclaimer. For completeness, counsel for the defenders further pointed out that it was recognised that in terms of UCTA, section 24(2A), the "reasonableness" test fell to be applied in regard to circumstances obtaining "when the liability arose or (but for the provision) would have arisen". The arising of liability had to mean - as in the context of prescription - the concurrence of an enforceable obligation, that is to say, in a case such as this damnum plus injuria. The pursuers averred that at the time of the advance to Mrs Mackay the hotel was worth much less than the initial amount of the overdraft, which the Bank thereafter allowed to increase continually until the time of the execution by Mrs Mackay of the trust deed for behoof of her creditors. Accordingly, on averment, the true value of the hotel was always significantly less than the sum lent to Mrs Mackay at the outset. In light of the speeches delivered in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd [1997] 1 WLR1627, the hypothetical arising of liability was thus at the time of the initial advance in December 1995. Reference was also made by counsel to Osborne & Hunter Ltd v Hardie Caldwell 1999 SLT 154. Thus, the factors relevant to the UCTA reasonableness test were to be viewed at the time of the advance, which effectively equiparated with the issue of the report.

[12] As I have already indicated, in his response to Mr Ferguson's argument Mr Creally did not take issue with the applicability of the Caparo three-fold test. He also did not take issue with Mr Ferguson's approach to the analysis of UCTA and his submission that the reasonableness test fell to be applied in the autumn of 1995 when the funds were advanced, rather than at the point of eventual default by Mrs Mackay. Mr Creally submitted that, in regard to the proximity branch of the Caparo test, there was no question but that the report had been communicated to the Bank by the defenders. It was plain from its terms that the purpose for which the report had been prepared was the raising of loan finance and there was thus a specific type of transaction in the contemplation of its author. The report itself referred to its being prepared for "loan security purposes". The identity of the possible lender was known. In sending the report directly to the Bank, the defenders thereby assumed responsibility to the Bank for the advice which it contained. The concept of assumption of responsibility was important and in that connection counsel referred to Henderson v Merrett Syndicates [1995] 2 AC145; White v Jones [1995] 2 AC207. In sending the report directly to the Bank the defenders therefore assumed responsibility to the Bank since it was evident that the Bank would be likely to rely on the report in deciding whether, and if so, how much, to lend to Mrs Mackay.

[13] In regard to the Disclaimer, counsel for the pursuers accepted that in theory the existence of a disclaimer was a factor relevant to a decision whether a duty of care existed. However, in the present case, the Disclaimer lacked any relevant effect since it was contained in a communication addressed to Mrs Mackay and was only conceived to limit the defenders' responsibility in the event that it were she who chose subsequently to disclose its terms to a third party whose identity was unknown to the defenders. If when sending their report to the Bank the defenders had wished to avoid responsibility to the Bank, it was necessary that they send a separate warning or intimation of their unwillingness to accept such a responsibility.

[14] Respecting the issues of fairness and reasonableness, counsel for the pursuers submitted that there was nothing unfair or unreasonable in holding that the defenders were under a duty of care to the Bank. There was only one known lender. The fact that the Bank had made no payment for the defenders' advice was of little moment since the defenders' client would be likely to have to pay any fee incurred by the Bank in obtaining separate advice. The transaction, while not domestic, was of small value. The defenders were probably insured. They were a well known firm and the Bank might reasonably rely on their reputation for skill and care. Counsel for the pursuers did not suggest that materially different considerations arose depending whether one considered "reasonableness" as a branch of the Caparo test or as the statutory test under UCTA.

[15] Counsel for the pursuers accordingly moved for a finding that a relevant basis for the existence of a duty of care had been averred and that consequently the case should proceed further by way of proof before answer.

[16] Although counsel for the defenders presented as his first ground for dismissal of the action the submission which I have endeavoured to summarise in para.[7] above, I find it appropriate first to consider the Disclaimer and the parties' submissions concerning its effectiveness.

[17] As I have indicated, in the course of his submissions, counsel for the pursuers contended in substance that possible consequences of the Disclaimer were eluded. As I understood it he maintained that the Disclaimer could only have possible application were the defenders' report to have been sent to Mrs Mackay and she had then thereafter chosen to show it to the Bank without reference to the defenders whereas, by sending the report directly to the Bank the defenders became aware of the Bank as a party reading the report and likely to rely on it and it was thus necessary, were the defenders to decline to assume responsibility, that a separate disclaimer be provided. In my opinion this submission is misconceived and should be rejected. First, it may be observed that the request for sight of the report was in the context of Mrs Mackay's being present with Mr Mackie when Mr Mackie made the request. But for what Mrs Mackay had told Mr Mackie about not yet having received the report which she had commissioned and the authorisation evidently given by her to telephone the defenders, no approach would have been made to the defenders by the pursuers. In my view it is plain that the transmission of the report to the pursuers' branch was simply a shortcut method and it is not materially different from Mrs Mackay having herself received the report and thereafter passed it to the pursuers, or another bank or lending institution. Secondly, it is in my view mistaken to suggest that the warnings or limitations expressed in the Disclaimer were solely intended for Mrs Mackay and that a separate disclaimer fell to be given to the Bank. It is in my view plain from the text of the disclaimer that the disavowal of responsibility is directed to any reader of that text other than Mrs Mackay. Any such reader may of course chose to proceed upon those terms, but in the knowledge that he does so at his own risk. Further, as counsel for the defenders pointed out in Hedley Byrne and in McCullagh the disclaimer was effective even though the identity of the recipient of the statement containing the disclaimer was known to its maker at the time.

[18] Having thus rejected the suggestion of counsel for the pursuers that the Disclaimer was obviated by reason of the method in which it was conveyed to the Bank the issue which next arises is the perhaps more substantive one whether the defenders may avoid responsibility to the pursuers for the consequences of the supposedly negligent valuation of the hotel by reason of the existence and terms of the Disclaimer itself. That issue may, in turn, involve subsidiary issues of the interworking of the Caparo test and the UCTA provisions.

[19] In approaching that question it appears to me that although it predated the enactment of UCTA the decision in Hedley Byrne remains an appropriate starting point. The statement relied upon in Hedley Byrne was one expressed as being given without responsibility on the part of its maker. In the result the House of Lords held that the existence of that disclaimer prevented the arising or creation of any duty of care between the maker and the recipient of the statement. The speeches delivered in Hedley Byrne were closely analysed by Hobhouse L.J. in McCullagh (220FF) and, following that analysis, Hobhouse L.J. concluded (222):

I respectfully agree with the conclusion reached by Hobhouse L.J. and would gratefully adopt the citation from and the analysis of relevant passages in the speeches in Hedley Byrne which he gave. A similar approach has also been followed by the Court of Appeal in England in First National Commercial Bank plc v Locksley. As Hobhouse L.J. went on to record in his judgment in the McCullagh case, the importance of the concept of assumption of responsibility in cases of negligent statements was recognised in the speeches in Henderson v Merrett Syndicates and in White v Jones. In the first of those two cases Lord Goff stated, (181) -

In my view, subject to any question arising from UCTA, the Disclaimer in this case is such an appropriate disclaimer. It was not suggested that the language of the Disclaimer was other than clear and unambiguous. Provided UCTA does not inhibit the defenders from invoking it, the Disclaimer in my view has the plain consequence that there can be no duty owed by the defenders to the pursuers. On reading the defenders' report the pursuers are clearly told, in unmistakeable terms, that no responsibility is assumed towards them. As I have already indicated it is plain from the speeches in Hedley Byrne that such a denial of responsibility may be effective to avoid the creation of a duty of care. Whether, however, the defenders may thus invoke the Disclaimer is recognised by counsel as depending on whether their doing so passes the "reasonableness test" under UCTA (cf. McCullagh, 237ff). To that issue I now turn.

[20] In my view, none of the particular policy considerations which led the court in Smith v Bush to hold the reasonableness test to be unsatisfied in that case have any application in the present instance. One is not in the realm of domestic conveyancing involving the purchase of houses of modest value, to which the court was careful to confine its judgment. The transaction on which Mrs Mackay was proposing to embark was plainly a commercial transaction, albeit of a modest value. It was likewise treated by the pursuers as being a commercial transaction. The pursuers are of course a large commercial banking entity with ready access to legal advice and they were well able to appreciate the meaning and effect of the Disclaimer in the defenders' report. It is accepted on their behalf that the pursuers could readily have obtained advice from another surveyor and that there were no constraints in terms of finance or urgency upon their so doing. It is also accepted that, as an alternative course, the pursuers could have asked the defenders to advise them separately as clients in a direct relationship for which a fee might well be payable. It is accepted also by the pursuers that they were of at least equal bargaining power with the defenders. While the defenders are no doubt insured, it is not disputed that the pursuers are equally able in financial terms to bear such loss as may have been occasioned by this particular act of lending on their part. It was of course open to the pursuers to proceed - as they evidently did - on the comfort of a "without responsibility" report but if they chose to do so it is hard to see that recognition of their knowingly proceeding on that basis involves material unfairness to them.

[21] Accordingly, in these circumstances I consider that on the pertinent facts, all of which are admitted by the pursuerrs, the defenders succeed in establishing that the test of reasonableness under UCTA is satisfied respecting the Disclaimer. It thus follows that the defenders are entitled to rely upon the Disclaimer and consequently that the action fails for want of the existence of a duty of care.

[22] In these circumstances it is unnecessary for me to reach a concluded view on Mr Ferguson's first submission to the effect that it was not foreseeable that the pursuers would be highly likely to rely on the defenders' report for the purposes of its own lending security. As I understood this submission it proceeded independently of the existence of the Disclaimer. It is no doubt correct that what is averred on behalf of the pursuers is that the communication of the defenders' report to the pursuers was requested to enable the final completion of Mrs Mackay's loan application form. However, I have difficulty in accepting that it can be said - at least in advance of inquiry - that it was not foreseeable (assuming the absence of the Disclaimer) that the Bank might be likely to rely on the report. It appears to me that, after all, one purpose of Mrs Mackay's including the report with her application was to persuade the Bank to lend. In these circumstances had there been no effective Disclaimer of responsibility I would not have been inclined to accede to Mr Ferguson's motion for dismissal of the action on this particular ground of his argument.

[23] In the event I shall uphold the defenders' plea to the relevancy of the action and grant decree of dismissal.