UK Supreme Court to Consider Duty of Care for Negligent Misrepresentation

The United Kingdom Supreme Court has granted permission to appeal in a case involving the duty of care for negligent misrepresentation.  The appeal in Scullion will require the Court to consider whether a property surveyor, which prepared a valuation report for the property purchaser's mortgagee, owed a duty of care to the purchaser himself, even though he acquired the property for investment rather than residential purposes.

Background

The appellant was a small business owner who decided to invest some of his private pension money in the residential "buy-to-let" property market in England.  He ultimately purchased a flat on the strength of mortgage financing.  The mortgage application form authorized the mortgage lender to obtain a valuation of the flat at the appellant's expense, which it did.  The report was prepared by the respondent surveyors, and indicated that the flat had a rental value of £2,000 per month.  The mortgage lender sent the appellant the report along with its mortgage offer, and the appellant relied on the report in accepting the offer.  Subsequently, the appellant discovered that the flat's rental value was much lower than £2,000 per month.  He was forced to sell the flat at a significant discount, leaving a large balance on his mortgage account, and brought a claim against the respondent surveyors.

Decisions Below

The appellant was initially successful at trial.  However, the English Court of Appeal set aside the trial judgment, on the ground that the respondents did not owe the appellant a duty of care.  Lord Neuberger M.R., who delivered the Court of Appeal's unanimous judgment, distinguished the appellant's case from the 1989 decision of Smith v. Eric S Bush (A Firm), which had been relied on by the trial judge.  In Smith, the House of Lords held that a valuer acting for the prospective mortgagee of the property purchaser owed a duty of care to the purchaser, in circumstances where the property was acquired for residential purposes.  Lord Neuberger found that, because the appellant in this case had intended to use the property for investment rather than residential purposes, it would not be just and equitable to impose a duty of care upon the respondents (even though the appellant relied upon the report, the respondents knew that he had paid for it, and the respondents knew or ought to have known that there was a high probability he would be shown it).  The Court of Appeal observed:

...the transaction in the present case was, from the point of view of the purchaser, essentially commercial in nature. That may not be decisive of itself, but it seems to me to colour the issue. At least when it comes to lower or middle range properties, people who buy properties to let are, as a class, likely to be richer and more commercially astute than people who buy to occupy. People who buy to let can therefore be regarded as more likely to obtain, and more able to afford, an independent valuation or survey. As Lord Templeman said in Smith [1990] 1 AC 830, 852, many people buying a property for their home have little money left to pay for their own survey, whereas there is no reason to think that the same is true of people buying a property as an investment to let. Further, commercial purchasers of low to middle value residential properties, such as those buying to let, can properly be regarded as less deserving of protection by the common law against the risk of negligence than those buying to occupy as their residence. (para. 49)

Potential Significance

The UK Supreme Court's ruling in Scullion could be of great significance to the law of negligent misrepresentation in Canada and throughout the Commonwealth.  The Supreme Court of Canada has frequently relied upon English appellate cases involving negligent misrepresentation - like Hedley Byrne and Caparo - in its jurisprudence on the tort (e.g., Hercules Managements).  Its recent decisions also manifest an increasingly restrictive approach to negligent misrepresentation (Sharbern and Imperial Tobacco).  If the UK Supreme Court affirms the Court of Appeal's judgment, it could result in an important narrowing of the tort, since courts may be less willing to recognize a duty of care to commercial users of misrepresentations.  In effect, Scullion suggests that commercial users who are not the primary recipients of professional advice should obtain their own advice, rather than rely upon that provided to third parties.  It will be interesting to see whether this preference for self-reliance over reasonable reliance prevails at the Supreme Court.

Case Information

Case Name: Scullion v. Bank of Scotland Plc (t/a Colleys)

Court of Appeal Citation: [2011] EWCA Civ 693

Date Permission to Appeal Granted: November 23, 2011

duty of care investment purpose mortgage mortgagee negligent misrepresentation offer property purchaser residential purpose surveyor UK Supreme Court valuation

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