Negligence

Citation

Lee, R. (2002), "Negligence", Property Management, Vol. 20 No. 1. https://doi.org/10.1108/pm.2002.11320aab.001

Negligence

Negligence

Farley v. Skinner (2001) The Times 15 October, [2001] 42 EG 139 (CS)

This controversial case has finally been settled in the House of Lords. In 1990 the claimant instructed the defendant chartered surveyor to inspect and report on a private dwelling house in East Sussex. He explained that he was considering buying and refurbishing the property for his own occupation particularly at week ends and holidays. He specifically asked the defendant to investigate and report on whether the property might be affected by aircraft noise. The defendant reported that it was unlikely so the claimant, after spending £125,000 on refurbishment, took up residence. He soon discovered that the property was in fact badly affected by aircraft noise. The claimant sued the defendant for negligence claiming £70,000 diminution of value of the property and £10,000 for the distress and inconvenience caused by the noise.

The claim for £70,000 diminution of value failed both in the High Court and on appeal as the evidence of the defendant's expert witness showed that the value of the property was not greatly affected by the noise. However, the High Court judge awarded £10,000 for the distress and inconvenience caused by the noise as the judge found that the claimant would not have bought the property had the surveyor carried out his instructions properly and, having spent a considerable sum on alterations at a time when he did not know of the noise, the claimant should not be penalised for deciding not to move. It was this award that proved to be controversial.

The defendant appealed against this award relying on the general rule that compensation for non-pecuniary and non-physical harm is not recoverable in an action for breach of contract. He argued that the case did not fall within the exceptional category outlined by Bingham LJ in Watts v. Morrow (1991) 1WLR 1421, 1 EGLR 150. Further that the case was not one where damages for mental suffering had related to any physical inconvenience and discomfort caused by the breach.

The appeal was allowed but only by a majority. The Court of Appeal decided that the contract was "an ordinary surveyor's contract" to supply information and not to produce a particular result thus the contract did not fall within the exceptional category in Watts v. Morrow. There was no evidence that the aircraft noise caused any physical inconvenience and therefore the award of damages for distress and inconvenience had been inappropriate.

The result was controversial as it appeared to allow a surveyor to disregard, without penalty, an important term of his contract with his client.

The claimant appealed to the House of Lords. The defendant, relying on dicta of Lord Bingham in Watts, submitted first that even if the provision of pleasure was an important part of the contract it did not result in liability unless the provision of pleasure was the object of the entire contract.

Second, that the exceptional category outlined in Watts only covered cases where the promisors guaranteed to achieve a particular object. It did not extend to a breach of a contractual duty of care even if this was imposed to secure pleasure.

Third, that by not moving the claimant had forfeited any right to damages for non-pecuniary harm.

Lord Steyn observed that it was difficult to reconcile the decision of the Court of Appeal in this case with that of the House of Lords in Ruxley Electronics and Construction Ltd v. Forsyth (1995) AC344. He confirmed that the principles enunciated in that case in support of an award of damages for breach of contract in respect of the provision of a pleasurable amenity had been authoritatively established. Further that the principle that contracts must be kept would be undermined if the law did not take account of the fact that consumers may often demand something that has no economic value but has value to the consumer personally.

Their Lordships re-examined Lord Justice Bingham's propositions enunciated in Watts v. Morrow:

A contract breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party. This rule … is founded … on considerations of policy.

But the rule is not absolute. Where the very object of a contract is to provide pleasure, relaxation, peace of mind, or freedom from molestation, damages will be awarded if the fruit of the contract is not provided.

In cases not falling within this exceptional category, damages are … recoverable for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience and discomfort …

Lord Steyn commented that while Bingham LJ's dicta in Watts were useful as a starting point they should be read subject to the three points on which his Lordship had rejected the surveyor's claim.

First, there was no reason in principle or in policy why recovery in the exceptional category of cases outlined in Watts should depend on the "very object" of the contract being to secure pleasure, relaxation or peace of mind. It was sufficient that it was a major or important part of the contract.

Second, the distinction which the defendant had drawn between an obligation to exercise reasonable skill and care and a guarantee to achieve a particular result was not founded on precedent and if it were, the law would be seriously deficient.

Third, that as the claimant had acted reasonably in deciding not to move and had thereby avoided an even larger claim against the surveyor, there was no satisfactory legal principle on which the law should divest him of a claim for non-pecuniary damages.

The appeal was allowed.

The following two cases concern solicitors' negligence but also raise wider issues.

In Patel and another v. Daybells [2001] 32 EG 87 (CS) the defendant firm of solicitors was instructed to act for a limited company, of which the claimants were sole directors and shareholders, in the purchase of a club. As a condition of providing the claimants' company with a bridging loan for the purchase of the club and a further sum for refinancing purposes the bank, BCCI, required the claimants to furnish it with personal guarantees. The entire loan from BCCI was to be repaid within four months and in one lump sum from the proceeds of sale of another club belonging to the claimants' company. The claimants' solicitor was to act for them in the conveyancing process.

Contracts for the purchase were exchanged but at the time the club was mortgaged to secure the vendor's borrowings from the Midland Bank. The vendor's solicitor followed normal practice and confirmed that a written solicitor's undertaking (in the Law Society's recommended Form 53) evidencing the discharge of the existing Midland Bank mortgage would be handed over on completion. On completion, just prior to the agreed deadline, the entire purchase price was paid into an account held by the vendor's solicitor.

About one month later the vendor's solicitor wrote to the defendant claiming that the Midland Bank mortgage had been discharged. However, seven months later, the defendant discovered that this was not so as the vendor's solicitor had not complied with the Midland's condition for the release. Unfortunately, by this time the vendor's solicitor had ceased to practice.

The Midland Bank mortgage was eventually discharged some three years later with a payment out of money received by BCCI from the vendor's solicitor's professional indemnity insurers. The claimants' club was then sold and the proceeds used in reduction of the claimants' indebtedness to BCCI.

The claimants brought action against the defendant for negligence claiming that even though the defendant had followed commonplace conveyancing practice it had been negligent to arrange for the entire purchase price to be remitted to the vendor's solicitor in reliance on the undertaking rather than arranging for the redemption money to be paid directly to the Midland or its agent.

Following Edward Wong Finance Co. Ltd v. Johnson Stokes & Master [1984] AC 296 the trial judge said there were three questions for consideration in assessing whether the defendant had fallen short of the standard of care owed to the claimants:

1. 1.

   Did the practice as operated by the defendant involve a foreseeable risk?

2. 2.

   If so, could the risk have been avoided?

3. 3.

   Was the defendant negligent in failing to take avoiding action?

The judge held that there was a foreseeable risk, and that a solicitor who adopted the practice (to save the inconvenience of making a direct payment to the vendor's mortgagee) did so at his own risk, not that of the client. Nevertheless he decided that on the facts the answers to the second and third questions had to be answered in favour of the defendant because the deadline for payment had almost expired before the claimants were put into funds. Thus the defendants were not liable. The claimants appealed.

The Court of Appeal agreed with the trial judge that the fact that a practice was commonly or universally followed would not exclude negligence liability if it exposed clients to a foreseeable and avoidable risk. The risk in accepting an undertaking from the vendor's solicitor was that Form 53 might not be produced either as a result of misunderstanding, dispute as to the amount owed or the solicitor's dishonesty. However, on the facts the defendant had shown that the practice could be defended on the basis of comparative risks and benefits. Edward Wong Finance (above) and Bolitho v. City & Hackney Health Authority [1997] 4 AllER 771 were applied.

The appeal was dismissed but it further confirms the need for professionals acting for clients not to follow blindly existing common practice assuming that they will thereby be immune from negligence liability.

In Longstaff and another v. Birtles and others [2001] 34 EG 98 (CS) the issue was one of breach of a solicitor's fiduciary duty. The claimants instructed the defendant solicitors to act for them in the purchase of an inn. Eventually, they decided not to proceed with the purchase. Unknown to them the solicitors were in partnership with two others in an hotel business and at the meeting in which the claimants said they did not wish to proceed with the purchase of the inn, the solicitor suggested that they might like to buy into the partnership. The following day the solicitors returned the papers concerning the purchase of the inn and the claimants visited the hotel. Over the next two months further meetings were held and the solicitors drafted a partnership deed. At no time did they insist that the claimants take independent legal advice. Eventually the deed was signed by which the claimants bought a half share in the partnership and were to act as salaried managers, to live on the premises and to receive half of the profits. During the following two years the business ran into trouble and the partnership was dissolved.

The claimants issued proceedings in negligence claiming that they had contracted with the solicitors to provide advice concerning the purchase of the inn and the hotel business and that the solicitors had negligently failed to advise them to seek independent legal advice.

The trial judge held that the solicitors' retainer related only to the purchase of the inn and had thus ended before discussion turned to the hotel partnership. All that remained of the retainer by this time was the solicitors' duty to write a letter to the vendors of the inn and to return the papers. The discussion of the hotel partnership was thus a fresh and independent piece of business and by the time the solicitors introduced it there was no solicitor/client relationship subsisting in which the solicitors owed duties to the claimants. There was no assumption of responsibility that could lead to liability in tort.

The Court of Appeal disagreed holding that the relationship of trust and confidence between the solicitors and the claimants did not suddenly end on the termination of their retainer in respect of the purchase of the inn. It was during the course of that relationship that they had introduced the business opportunity of the hotel partnership to the claimants. This gave rise to a situation in which the duty of the solicitors conflicted with their personal interest. In continuing to deal with the claimants and in failing to insist that the claimants obtain independent advice, the solicitors had acted in breach of their fiduciary duty.

The claimants had suffered substantial loss as a result of the breach and it was clear that if the solicitors had not acted in this way it was likely that the claimants would have taken independent advice and on balance would probably have withdrawn from the partnership. The appeal was allowed.

The Court of Appeal has thus emphasised the paramount duty to observe fiduciary obligations and that the duty may continue to exist even after the termination of the particular relationship that gave rise to it. Other professionals should take note.