England and Wales Court of Appeal (Civil Division) Decisions

1. LORD JUSTICE SIMON BROWN: This is a Hedley Byrne-type case - an architect's appeal arising out of a property-purchaser's claim against him for damages for negligent misstatement. As will become clear, it is a singular case on the facts and these, I fear, must be set out in a little detail to make the true nature of the issues intelligible.

2. Mrs Machin (the plaintiff in the action, the respondent to this appeal) runs a number of care homes for the elderly. By a contract dated 27th May 1992 she agreed to purchase from Mr and Mrs Adams (the first and second defendants who have long since settled her claim and who play no part in this appeal) a large property known as The Grove, Charlestown Road, St Austell.

3. Mr Adams, an experienced builder, was to extend the property and convert it into a home for some thirty residents. The purchase price was £850,000 which was to include the specified works of alteration and extension. Amongst the terms agreed were the following:

4. No architect was in fact appointed such under the contract. Instead Mr and Mrs Adams retained in the first instance an architectural technician, Mr Champion, to obtain the various Building Regulation consents, and then, through him, Mr Bannister (the appellant). Mr Champion's letter to Mr Bannister of 16th June 1992 made plain that he was being retained "to undertake the inspection of the building works and to provide an Architect's Certificate for my client Mrs Adams". Whilst, however,

5. Mr Bannister was provided with the drawings for the project, he was never at any stage informed of the contractual provisions governing the sale of the property.

6. Mr Bannister made a number of inspections during the course of the works. Following one such, he wrote to Mrs Adams:

7. I shall refer later to Mr Bannister's letter of 13th January 1993, the letter which it is said contains the negligent misstatements giving rise to this claim against him.

8. Meanwhile, consequent on delays caused both by Mrs Machin and by Mr and Mrs Adams, there had been a series of supplemental agreements postponing the date for completion. I need refer to one only, that of 30th December 1992, which included the following terms:

9. I repeat, Mr Bannister had not in fact been engaged to supervise the construction and certainly was not "The Architect" under the contract. Nor had he the least notion that any such term was being agreed between Mrs Machin and Mr and Mrs Adams. Probably, indeed, it was only later that he even came to know that the property was to be sold rather than operated as a care home by Mrs Adams herself.

10. I turn now to the critical letter of 13th January 1993 and the circumstances in which it came to be written. Whereas previously Mr Bannister had been expecting to be called back only for a final inspection when the works were complete, he had by now learned from Mr Adams that the property was to be sold and that Mrs Adams needed a letter from him indicating something of the present state of the works. The letter he wrote was this:

11. As will readily be seen, that letter makes three separate statements. As for the two estimates, namely that completion of the works would take about two weeks and cost £25,000, these figures had been suggested to Mr Bannister by Mr Adams and were agreed by him. The statement that "all works to date are to a satisfactory standard" (much the most important of the three as will shortly appear) was one which Mr Bannister had been asked to make and had felt able to make.

12. Although in evidence Mr Bannister prevaricated somewhat as to the purpose of this letter, the Judge accepted (as I think with ample justification):

13. That said, Mr Bannister nevertheless understood from

14. Mr Adams that the sale was only to take place after the building works had been completed. On 13th January, therefore, he still believed that he would shortly be asked to return for a final inspection and certificate. In the event there was neither.

15. Contractual completion eventually took place on 27th January 1993. This was pursuant to a fourteen day notice served upon Mrs Machin by the Adams's solicitor on 15th January under the provisions of the supplemental agreement (see paragraph 3 above). Before 27th January, however, there had been further negotiations between buyer and sellers leading to a final supplemental agreement of that date, varying yet again the terms of purchase. In particular it was agreed that three specific items of work would be removed from the contract and carried out instead by

16. Mrs Machin herself, the contract price being reduced by £25,000 accordingly. Those items were the supply and installation respectively of the lift, the "nurse call" system, and the fire alarm system (hereafter the Remaining Items). Mr and Mrs Adams were, however, to remain responsible for the completion of all other contract works and, of course, for the quality of all the contract works.

17. The one other point to note about this completion agreement is that it made no provision whatever for a retention. It did, on the other hand, provide both for the sellers' loan to the buyer of £145,000 (as to which see above) and for a further £140,000 of the purchase price to be paid by way of the future transfer from Mrs Machin to Mr and Mrs Adams of certain properties in Tenerife.

18. It is necessary at this stage to return to Mr Bannister's letter of 13th January to see what action was taken upon it. On 15th January the Adams's solicitor wrote to Mrs Machin's solicitor, Mr Stonehouse, stating:

19. Plainly the author had not seen Mr Bannister's letter, and certainly it suggested nothing as to a retention: rather it anticipated the outstanding works being completed within the following two weeks or so.

20. On 17th January, a Sunday, it appears that Mr Stonehouse himself inspected the property. His notes of that inspection suggest that he estimated the cost of the works outstanding to be some £20,000 over and above the value of what were to become the Remaining Items - the lift, "nurse call" and fire alarm systems, which he then thought worth £30,000 but which, net of VAT, were later valued, as stated, at £25,000. He also thought the works would certainly take more than two or three weeks to complete.

21. On 18th January Mr Stonehouse telephoned Mr Bannister.

22. He told him (as Mr Adams had not) about the outstanding "nurse call" and fire alarm systems, and also that completion of the sale was now due on 28th January. As a result of that conversation Mr Bannister wrote to Mr Adams on 19th January stating:

23. No less important, however, is a letter dated 18th January from Mr Stonehouse to Mr Bannister, following their telephone conversation (albeit Mr Bannister never actually received this letter). It set out Mr Stonehouse's own views on the value of the outstanding works and the time they would take to complete and continued as follows:

24. On 19th January Mr and Mrs Adams's solicitor finally sent Mr Bannister's letter of 13th January to Mr Stonehouse. Given what had taken place in the meantime, the use which Mr Stonehouse then made of it is most instructive. On 20th January he copied it both to the Bank of Wales and to his client, Mrs Machin. To the Bank of Wales he said this:

25. That was an astonishing thing to have said. In the first place Mr Bannister's letter indicated nothing whatever as to a retention; on the contrary, it envisaged the work being completed within two weeks (before completion of the purchase). More importantly, however, Mr Stonehouse knew perfectly well that Mr Bannister's figure of £25,000 was an under-estimate in that it overlooked entirely the "nurse call" and fire alarm systems (of which Mr Bannister had known nothing on 13th January), alternatively an over-estimate assuming, as was shortly to be agreed, that those two items together with the lift installation were to be removed from the contractual works.

26. For reasons which will eventually become clear, I should quote one other paragraph from Mr Stonehouse's letter to the Bank of Wales:

27. To Mrs Machin Mr Stonehouse wrote:

28. In the event, the Bank of Wales on 21st January agreed to advance the necessary funds without any retention whatever. On 20th January their own valuers had valued the property at £750,000; they, on the security of a first charge, were advancing £425,000 and granting an overdraft facility of a further £50,000.

29. As stated, completion took place on 27th January 1993.

30. Six months later, in late July 1993, came the writ and statement of claim. For Mr Bannister it came as a bolt from the blue. He knew nothing of any claim against him. There had been no letter before action. Save, indeed, for his single phone conversation with Mr Stonehouse on 18th January, he had had no contact whatsoever with Mrs Machin or anyone acting on her behalf. The statement of claim complained of defective works and claimed against all three defendants £35,000 as the estimated cost of rectifying these and £100,000 as the estimated loss of profits: it was alleged that the defects had delayed the registration of the nursing home. Mr and Mrs Adams counter-claimed.

31. In April 1995 Mrs Machin and Mr and Mrs Adams settled her claim against them and their counter-claim against her and in addition a number of other proceedings brought by the Adams's against her. We have been unable to discover on what terms the present claim was settled.

32. On 13th September 1995 certain of the allegations pleaded against Mr Bannister were ordered to be tried as preliminary issues. These were essentially:

33. Mrs Machin in respect of his letter (to Mrs Adams) of 13th January 1993 and

34. Those preliminary issues were tried before Judge Overend acting as an Official Referee on 22nd and 23rd January 1996 and by a reserved judgment dated 9th February 1996 were resolved in the plaintiff's favour. The judgment expressly left outstanding the question whether Mrs Machin had thereby suffered any, and if so what, detriment. Mr Bannister now appeals, insofar as on matters of fact with the leave of the single Lord Justice.

35. I propose to address the two central issues in reverse order.

36. Mrs Machin's evidence upon this issue, noted in the judgment below, was:

37. The judge's conclusion upon the issue was:

38. In my judgment this was an impossible conclusion on the facts. Whatever the letter had said, Mrs Machin could not and would not logically have acted any differently. Let me start by putting to one side Mr Bannister's estimates of two weeks' work outstanding and £25,000 to complete them. Those estimates had been overtaken by events well before completion; they had, indeed, been recognised to be wrong by Mrs Machin's own solicitor. Nor is there any question of Mr Bannister's £25,000 being the same £25,000 as was ultimately agreed to represent the value of the Remaining Items and deducted from the contract price - although the statement of claim and, indeed, Mrs Machin at one point in her evidence, sought to suggest otherwise.

39. One is left, therefore, with Mr Bannister's statement that "all works to date are to a satisfactory standard", the statement on which Mrs Machin claimed to have placed particular reliance - although not a single hint of such reliance is to be found in any of the many contemporaneous documents. What is argued on her behalf is that but for the letter of 13th January she would herself have obtained professional advice upon the standard of the works carried out and that, had she done so and learned of their defective quality, she would have sought to negotiate different terms for completing the purchase. She would have sought either:

40. It is not, I should note, suggested on her behalf that she would have refused to complete at all: the plain fact is that she was long since locked into this purchase. She had moved into the property on 16th May 1992 (before even the initial contract) and had remained there under licence throughout, spending some £90,000 on the property during that period. All that would have been lost had she failed to complete.

41. Let me therefore consider in turn each of the three aspects of completion which Mrs Machin says she would have approached differently but for Mr Bannister's assurance as to the quality of the existing works.

42. I can see no logical reason why, even had she been informed that some of the existing work was defective, Mrs Machin should have wished to delay completion. On the contrary, as

43. Mr Stonehouse's letter of 20th January to the Bank of Wales made plain, the parties were hoping to complete even before 28th January - the date when, following the sellers' notice of 15th January, Mrs Machin was now bound to complete if all (the £90,000 she had already spent on the property) was not to be lost.

44. Mrs Machin's legal commitment to complete within the period of that fourteen day notice had, of course, been entered into on 30th December 1992 in consideration of the sellers' agreement to lend her an additional £45,000 and to allow on completion whatever retention the Bank of Wales reasonably required, i.e. long before any assurance was sought or given as to the state of the existing works. In reality it served Mrs Machin's purpose to have Mr Bannister's assurances; she was anxious above all to obtain the necessary funds from the Bank of Wales. That, no doubt, is why Mr Stonehouse, in forwarding Mr Bannister's letter to the Bank on 20th January, so surprisingly failed to correct its mistaken estimate as to the value of outstanding works. True it is that earlier, on 18th January, Mr Stonehouse had written to Mrs Machin suggesting "that the most sensible way of dealing with the matter would be for completion to be postponed for a period allowing Mr Adams sufficient time to complete the works and the installation of the lift, fire alarm system and 'nurse call' system." That suggestion too, however, had been overtaken by events by the time of completion when those three items were removed from the contract works.

45. For the life of me I cannot see how the state of the existing works could logically affect the contract price. Although Mr Guthrie QC at one stage of his argument sought to contend to the contrary, it is perfectly clear that the £25,000 reduction was solely related to the value of the three Remaining Items, the responsibility for which then passed to the buyer; it left the responsibility for all other outstanding work and for rectification of defective work to the sellers.

46. This was the point that appears to have attracted the judge below. "There was," he suggested, "scope for negotiations relating to the extent of any retention from the contract sum." Given, however:

47. Mrs Machin clearly chose not to operate,

48. I respectfully disagree. Let it be supposed - although this is strongly disputed - that the pleaded defects (a) are made out, and (b) represent work that was substandard as at 13th January rather merely than incomplete, I cannot see how that shows Mrs Machin's (for this purpose assumed) reliance on the letter to have disadvantaged her. In the first place she had a perfectly good case against the Adams's for any loss suffered. But in any event her only loss would be the loss of an opportunity to seek different completion terms and, as I have already endeavoured to show, that opportunity would have availed her nothing.

49. Although these conclusions, if shared by my Lords, are sufficient to dispose of this appeal in Mr Bannister's favour, I must nevertheless deal with the other issue too, not least in deference to the excellent and extended argument we heard upon it.

50. The governing principles of law in play here are not in dispute. Although we were referred to all the usual authorities I accordingly propose to take most of them as read and to cite initially just two passages from the many relevant judgments. First this, a passage from the speech of Lord Oliver in Caparo plc v Dickman [1990] 2 AC 605 at 638:

51. Second, this short passage from Neill LJ's valuable analysis of the law in McNaughton Ltd v Hicks Anderson & Co [1991] 2 QB 113 at 125:

52. The judge's conclusion upon this issue was:

53. I confess to have found this the more difficult of the two issues.

54. The strength of Mrs Machin's case lies in three particular matters. First, as found by the judge, that "it was obvious that the letter would be shown to someone else, probably the purchaser of the nursing home, or possibly a person providing finance to the Adams's." Second, that Mr Bannister had been carrying out periodic inspections of the building works and was therefore uniquely placed to express a view upon their standard. Had there, for example, been inadequate foundations or no drains, only he would (assuming proper inspection) have known of that: such defects would have been covered up by subsequent works and only come to light when finally the new building was put to use. Third, the very fact that Mr Bannister is an architect, and that architects commonly certify the quality of work for the benefit of both contracting parties, made it the more likely that

55. Mrs Machin would rely on his assurance, and the less likely that she would retain her own independent adviser.

56. Assuming (contrary to my earlier conclusion but as must be assumed for the purposes of this part of the case) that

57. Mrs Machin did rely upon Mr Bannister's assurance to her detriment, then, submits Mr Guthrie, these considerations show that each of Lord Oliver's four requirements are satisfied:

58. Mr Bannister knew at least inferentially that the purchaser (or possibly whoever was financing the Adams's work) required his advice on the standard of the works to date, that the advice would be communicated to them for the purpose of satisfying them on the point, and that they would be likely to act upon it without making independent enquiry. Similarly, he submits, this case falls into the first of Neill LJ's two categories: it is a case in which Mr Bannister's statement was made "for the express purpose of being communicated to the 'advisee'". It would accordingly be right to hold that Mrs Machin as the advisee was within the scope of the duty of care. Similarly, counsel submits, Mrs Machin should be held entitled to have relied upon the advice or, to put it as it is put in a number of the cases -see Lord Goff's speech in Henderson v Merrett Syndicates Ltd [1995] 2AC 145 at 180 - Mr Bannister should be held to have "assumed responsibility" to Mrs Machin - responsibility, that is, for the task of determining and advising whether or not the existing works were of a satisfactory standard - the assumption of responsibility within the case law being for a given task, not the assumption of legal liability - see Lord Browne-Wilkinson's speech in White v Jones [1995] 2AC 207 at 273.

59. Mr Guthrie submits indeed that this case is a fortiori to Smith v Bush and Harris v Wyre Forest DC [1990] 1 AC 831, where the respective defendant valuers, although instructed solely by prospective mortgagees, were nevertheless held liable to mortgagors who had purchased property in reliance on their valuations. Here, he points out, Mr Bannister through his earlier inspections enjoyed an advantage which those valuers did not.

60. To Mr Jackson's submission that, as at 13th January (the critical date when the letter was written), the advisee was not known to Mr Bannister either as an individual or even "as a member of an ascertainable class", Mr Guthrie responds that the only people for whose benefit Mr Bannister could have thought

61. Mrs Machin for these purposes as a member of an ascertainable class; the position here could hardly be more different to that envisaged by Lord Bridge in Caparo at page 621:

62. For my part, I see great force in Mr Guthrie's submissions on this part of the case. But for one consideration, indeed, I would have found the duty of care to exist. That consideration, however, is to my mind crucial and ultimately fatal to Mrs Machin's case. It is this.

63. Mr Bannister, as stated, still believed on 13th January that he would be asked to return to site for a final inspection so as to certify completion of works, and that only then would the sale be completed. Mr Stonehouse too believed that Mr Bannister was "to issue a final certificate on completion which obviously will be acceptable by all parties" (see his letter of 18th January already quoted). And for good measure Mrs Machin herself said in evidence that "a certificate of completion was what I was looking for, on the last and final inspection."

64. Yet, contrary to Mrs Machin's understanding - her suggestion in evidence that the letter of 13th January itself constituted the completion certificate is plainly hopeless - no such final inspection was made and no such certificate was ever forthcoming.

65. In these circumstances it seems to me quite impossible to regard the letter of 13th January as a document upon which

66. Mr Bannister should have anticipated Mrs Machin would rely in taking some irrevocable step, or, indeed, one on which she properly was entitled to rely. It was rather in the nature of an interim letter of comfort, essentially of the same kind as the letter which had followed one of Mr Bannister's earlier inspections, which I have already quoted.

67. But for this consideration - had this letter, in other words, been the final certificate which Mrs Machin said she believed it to be and which Mr Bannister and Mr Stonehouse expected would eventually be issued - I would have held the duty of care to exist. For all Mr Bannister knew, once completion took place, Mrs Machin was to have no retention or equivalent security whatever. Then, indeed, she might reasonably have relied on the assurance in the final certificate (even though not in contractual relations with the architect) and done so to her detriment. As it was, however, the position was critically different.

68. In the result, I would decide both issues in Mr Bannister's favour, allow this appeal, and dismiss Mrs Machin's claim against him.

69. LORD JUSTICE MORRITT: I agree with Simon Brown LJ that Mrs Machin did not rely on Mr Bannister's letter of 13th July 1993 and with his reasons for reaching that conclusion. I also agree with him that Mr Bannister did not owe Mrs Machin a duty of care in tort in respect of his letter of 13th January 1993. Simon Brown LJ indicates that but for the circumstances that Mr Bannister was due to carry out a further inspection with a view to the issue of a final certificate he would have concluded that Mr Bannister owed a duty of care to Mrs Machin. I do not agree with that conclusion which, though hypothetical, indicates a different process of reasoning. I agree with Sir Brian Neill that, for the reasons he gives, Mr Bannister would not have owed a duty of care to Mrs Machin even if Mr Bannister had not been due to carry out a further inspection with a view to providing a final certificate. But as the particular point of difference does not arise for decision it is unnecessary for me to say any more.

70. I agree that the appeal should be allowed and the claim of Mrs Machin against Mr Bannister should be dismissed.

71. SIR BRIAN NEILL: I have had the advantage of reading in draft the judgment of Simon Brown LJ and I can gratefully adopt his account of the facts of this case.

72. Where a plaintiff alleges that he or she has suffered economic loss as a result of reliance on a statement made inaccurately and negligently by the defendant it is necessary to consider all the circumstances of the case and in particular to concentrate on the following aspects of the matter:

73. In the present case our attention has been concentrated on points (c) and (e). I shall return to point (c) a little later in considering whether Mr Bannister owed Mrs Machin a duty of care. But first, however, I would draw attention to the recent decision of the House of Lords in the three cases which are reported collectively as Banque Bruxelles SA v Eagle Star [1997] AC 191. In Banque Bruxelles the defendants, as valuers, were required by the plaintiffs to value properties on the security of which they were considering advancing money on mortgage. In each case, the defendants considerably over-valued the property. Following the valuations, loans were made, which would not have been made if the plaintiffs had known the true values of the properties. It was common ground that the defendants owed a duty of care to the plaintiffs and the questions in issue related to the measure of damages. The facts of these cases were therefore very different from the facts in this case. Nevertheless I have found passages in the speech of Lord Hoffmann instructive for the purpose of examining the present case. In particular one can extract from Lord Hoffmann's speech the following general guidance:

74. I return to the facts of the present case and to the examination of the question whether Mr Bannister owed Mrs Machin a duty of care.

75. In my judgment in James McNaughton Paper Group Ltd v Hicks Anderson & Co [1991] 2 QB 113 I attempted at pp 125 - 127 to set out some of the factors to be taken into account in considering whether a duty of care exists. This case has demonstrated, however, that my analysis in that case was incomplete and that the matter requires to be looked at again.

76. Quite rightly the judge took as his starting point the passage from the speech of Lord Oliver in Caparo supra where he said at 638:

77. With this passage, and the other authorities to which we were referred, in mind I come to the letter of 13th January 1993. The letter was written in response to a request by Mr Adams, the builder. It seems clear, however, that Mr Adams did not need the letter for himself. As Simon Brown LJ has explained, it was needed by Mrs Adams. The letter written by Mr Bannister was in these terms:

78. For the purposes of the present appeal it is sufficient to concentrate on the sentence "All works to date are to a satisfactory standard." I shall assume that this statement was inaccurate.

79. Mr Bannister owed a duty to Mrs Adams in contract and, by reason of his relationship, in tort to take reasonable care to ensure that the statements made in the letter were accurate. The question for our consideration is whether he owed any duty to Mrs Machin.

80. I see the force of the argument that Mrs Adams was likely to show the letter to a third person. If she had wanted to know about the progress of the works only for her own information she could have asked her husband. But in my judgment it does not follow, even if one postulates that the classes of person to whom the letter might be shown included the purchaser and the purchaser's advisers as well as the bank or other institution which was supplying funds to Mrs Adams, that

81. Mr Bannister had "undertaken a responsibility" towards the purchaser in the sense in which that phrase was used by Lord Goff in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 180. It is to be remembered that Mr Bannister knew nothing of the reference to him in the supplemental contract of 30th December 1992.

82. I would start with the general proposition that if an adviser to one party to a transaction gives advice to that party his duty is prima facie to that party alone. But this general proposition has to be considered in the light of the recent authorities. First, it is clear that if the adviser to one party to a transaction makes a careless misrepresentation which that party communicates to the other party in circumstances which would make the first party liable for its accuracy to the other party, the adviser may be liable as well as his principal: cf Hobhouse LJ in McCullagh v Lane Fox [1996] 1 EGLR 35 at 44. Second, the words "assumption of responsibility" must be understood in the sense of a conscious assumption of responsibility for the task rather than a conscious assumption of legal liability to the plaintiff for the careful performance of the task: see Lord Browne-Wilkinson in White v Jones [1995] 2 AC 207 at 273. The court must therefore examine all the circumstances of the case. Thus, in my judgment, in order to establish liability against the adviser in a case such as the present the advisee must show some connecting thread between the task the adviser has undertaken to perform and the course of action upon which the advisee can be foreseen to be likely to embark.

83. Of course in some cases an adviser will provide information to his client in the knowledge that a third party will learn of and rely on that advice and in reliance on it will take an anticipated course of action. The adviser knows the purpose of the advice and the purpose for which it will be used by the third party. The knowledge may be actual or inferential. The mortgage cases fall into this category. But in order for the adviser to be liable to the advisee it seems to me that, if one applies Lord Oliver's criteria, he must have actual or inferential knowledge not only that the advice will be communicated to the advisee but also knowledge of the purpose for which the information is required by the advisee. It is only in such circumstances that there is room for a finding that the adviser has undertaken responsibility to the advisee in respect of some foreseeable loss.

84. In the present case Mr Bannister was not giving advice as to whether a particular course of action should be taken. At its highest his duty was to supply information for the purpose of enabling someone else to decide upon a course of action. Accordingly, in order to determine the scope, and indeed the existence, of any duty owed by him to Mrs Machin it is necessary to look closely at the consequences for which in the circumstances Mr Bannister could properly be held responsible if the information provided by him proved to be inaccurate.

85. By 13th January Mr Bannister knew that the property was to be sold. Let it be assumed that he also knew or should have foreseen that the letter might be shown to the purchaser. But against what harm was Mr Bannister to be regarded as having undertaken to guard Mrs Machin? Was the letter a signal on which she could rely to go ahead with the purchase without any further enquiry? The fact that Mr Bannister was due to carry out another inspection with a view to providing a final certificate puts the answer to the second question beyond doubt. But even without the additional and overwhelming factor of the impending final certificate I would hold that on the facts of this case

86. Mr Bannister owed no duty of care to Mrs Machin in relation to the letter of 13th January 1993.

87. On the other issue examined by Simon Brown LJ in his judgment, the issue of reliance, I do not propose to say any more than to express my complete agreement.

88. ORDER: Appeal allowed; respondent's claim against appellant dismissed; application for leave to appeal to the House of Lords refused; appellant to have the costs below but the determination of the respondent's liability for costs be adjourned pursuant to regulation 127 of the Civil Legal Aid (General) Regulations 1989; Section 18 order against the Legal Aid Board.