The report prepared by Mr. Babb negligently failed to disclose the presence of settlement cracks between the property and a later extension, which reduced the value of the property by some £14,500. This sum was claimed from Mr. Babb. The firm that had employed Mr. Babb had, in the meantime, become insolvent. The firm’s professional indemnity insurance had been cancelled by the trustee in bankruptcy, without run off cover. Mr. Babb was, the court was told, personally uninsured for this claim.

The Mortgage Valuation Report prepared by Mr. Babb contained a Certificate reading:
"I certify that I am not disqualified under Section 13 of the Building Societies Act 1986 from making this report".
Mr. Babb had signed the Certificate, giving his name and personal qalifications. Alongside his signature was the name and address of the firm. A continuation page was on the headed notepaper of the firm. It, too, was signed by Mr. Babb, giving his professional qualifications, with the name of the firm typed underneath his typed name.

The Mortgage Report was supplied to the purchasers in a form which omitted all references to Mr. Babb and his firm, although they knew that the report had been prepared by an independent valuer. The purchasers relied on this report and did not arrange for any independent survey of the property.

The Arguments
The purchasers alleged that Mr. Babb had breached a duty of care which he owed them in his personal capacity. Mr. Babb accepted that the purchasers would place reliance upon his report but maintained that, in order to hold him personally liable, they had to show that he had ‘assumed responsibility’ towards them in his personal capacity. He alleged that his duty was not to the purchasers, but to the firm which employed him and it was on the firm alone that the purchasers had relied. It was the firm that had ‘assumed responsibility’ to them, not he.

The Judgment
The majority judgment was delivered by May L.J., with whom Wilson J. agreed. A dissenting judgment was given by Aldous L.J. 
The court cited with approval the judgment of Park J. in the case of Yianni v. Edwin Evans & Sons [1982] QB 438, where a firm of valuers and surveyors, engaged by a building society to value a property for mortgage purposes, had been held liable to the purchasers in negligence, despite the purchasers ignoring a recommendation in the m ortgage application form that they arrange an independent survey. The court also quoted with approval the following from the judgment of Lord Griffiths in the combined cases of Smith v. Bush and Harris v. Wyre Forest District Council [1990] 1 AC 831:
"I have already pointed out that the only real distinction between the present case [Harris] and the case of Yianni is that the valuation was carried out by an in-house valuer. In my opinion, this can make no difference. The valuer is discharging the duties of a professional man whether he is employed by the mortgagee or acting on his own account or is employed by a firm of independent surveyors. The essence of the case against him is that he as a professional man realised that the purchaser was relying on him to exercise proper skill and judgment in his profession and that it was reasonable and fair that the purchaser should do so."

The court noted that Lord Griffiths in Smith v. Bush had expressed strong doubts about the usefulness in every case of the negligent provision of services of applying the test of ‘voluntary assumption of liability’, which had been discussed in the decision in Hedley Byrne v. Heller & Partners [1964] AC 465. Since that decision, the case of Henderson v. Merrett Syndicates [1995] 2 AC 145 had clarified that the test of assumption of responsibility was an objective, not a subjective, criterion. As Lord Slynn said in the case of Phelps v. Hillingdon Borough Council [2000] 3 WLR 776, ‘the phrase means simply that the law recognises that there is a duty of care. It is not so much that responsibility is assumed as that it is recognised or imposed by law".

The court found that the present case was covered by the passage from the speech of Lord Griffiths in the Smith and Harris cases quoted above. What applied to the in-house surveyor in the Harris case "applies just as much to Mr. Babb in the present case….. Just as in Yianni and Harris, the plaintiffs never even saw the valuation report; so here Miss Merrett and her mother did not know who had carried out the valuation. But I have no doubt that they are to be taken to have relied on the professional skill and care of the individual person who carried it out. Smith v. Bush and Phelps v. Hillingdon both make it clear that a professionally qualified person giving advice may owe a duty of care to an effective recipient of that advice in addition to the duty owed to their employers. I doubt if this is to be confined strictly to those who may be termed professionally qualified people, because it would depend on the full circumstances in which advice was given, rather than to any label appropriate to the adviser. In any event it is not necessary to define who at the fringes might or might not be a professionally qualified person, since on any view, Mr. Babb was one."

The court held also that Mr. Babb had accepted a personal responsibility for his report. He had signed it "in his personal capacity and was, for the purposes of section 13 of the Building Societies Act, the person who was competent to value and was not disqualified from doing so. He thus assumed personal responsibility for it. Since he knew that his report would be relied on by Miss Merrett and her mother, the responsibility which he assumed included a responsibility to them."

Lessons to be learnt
This case potentially increases the categories of ‘professional persons’ who may be held to owe a duty of care personally to those who rely on their services as well as to their employers. That has implications for professional indemnity insurance. Employed professionals need to be insured in their personal capacity for services they render in the service of their employer. Normally the employed professional can expect the professional indemnity policy of the employer to cover this exposure but it is always worth checking. This is particularly the case where the employment comes to an end. The previous employee needs to ensure that (s)he continues to be covered by the employer’s policy for cases arising during the period of the employment. Where this is not so, the previous employee may need to arrange cover individually.

Cases followed: Yianni v. Edwin Evans & Son [1982] QB 438; Smith v. Bush and Harris v. Wyre Forest District Council [1990] 1 AC 831

Cases considered: Caparo Industries v. Dickman [1990] 2 AC 605; Henderson v. Merrett Syndicates [1995] 2 AC 145; Phelps v. Hillingdon Borough Council [2000] 3 WLR 776

Cases distinguished: Williams v. Natural Life Health Foods [1998 1 WLR 830; Standard Chartered Bank v. Pakistan National Shipping Corporation & Others (No.2) [2000] 1 Lloyd’s L.R. 218