Geoff Brewer of Brewer Consulting considers professional liability

Most professional people in employment will assume that in carrying out their work they owe a duty of care to their employers, but not directly to their firm's clients. It might also be reasonable to assume that should one of the firm's clients bring a claim for negligent advice, the firm's professional indemnity insurance will provide protection in the event that liability is established.

On 26 July 2001, the House of Lords refused grounds for appeal against an earlier Court of Appeal ruling in the case of Merrett -v- Babb. This decision may cause employed professionals to think again about the liability that they might owe to their employer's clients (CJ 1 August).

Babb was a surveyor and valuer who, in June 1992, made and signed a mortgage valuation report for the Bradford & Bingley Building Society for a property in Falmouth, Cornwall.

The report was prepared in anticipation that the property would be purchased, subject to a mortgage from the building society, by Miss Merrett.

The mortgage valuation report gave the name and address of Babb's firm, Clive Walker Associates, and was signed personally by Babb giving his name and professional qualifications; he was a Fellow of the Royal Institution of Chartered Surveyors (RICS).

The report was then provided by the building society to Merrett in a form that omitted all references to Babb and his firm. Merrett knew the report had been prepared for the Bradford & Bingley Building Society by an independent valuer but did not know who the valuer was.

Clive Walker Associates had about 20 branches, including one in Plymouth that Babb ran as a salaried employee. In August 1994 a bankruptcy order was made against Mr Walker, the sole principal of the firm, and the firm ceased trading.

Contrary to the professional indemnity regulations of the RICS, the firm's professional indemnity insurance was cancelled.

The mortgage valuation report prepared by Babb noted that the property contained certain cracks but failed to point out that settlement had taken place. Merrett said the property was worth £14,500 less than the valuation, and in November 1997 sued Babb in his personal capacity.

The court held that his report should have recommended further investigation by a structural engineer or a chartered building surveyor and that the failure to do so was negligent.

In court it was argued on behalf of Babb that he was an employee of the firm instructed by the building society and that there was no assumption of responsibility by Babb personally.

His duty was to the firm in which he was employed. The purchasers should be taken to have relied on the firm and not on him personally. The judge brushed aside these arguments and decided that Babb owed Merrett a duty of care.



The matter then came before the Court of Appeal and, on a majority of 2:1, Babb's appeal was refused. In a dissenting judgment, Lord Justice Aldous said professional people should not be surprised if it is held that they are liable for their negligent advice.

However, in his view, the facts and the law in this case required a distinction to be made. Citing the Court of Appeal's decisions in the cases of Henderson -v- Merrett Syndicates Ltd and Hedley Byrne & Co Ltd -v- Heller & Partners Ltd, Lord Justice Aldous considered that the test was whether the plaintiff could reasonably rely on an assumption of personal responsibility by the individual who performed the services on behalf of the company.

In his view, there was no factual basis for the conclusion that Merrett could have reasonably relied on an assumption of personal responsibility by Babb. She never knew him, she never met him and the document that was sent to her never mentioned his name.

It was Clive Walker Associates that was paid and not Babb. Babb never conveyed anything to Merrett that suggested he assumed personal responsibility, as opposed to the firm for which he worked and which was engaged to do the survey.

Lord Justice May and Mr Justice Wilson disagreed with these strong views, refusing the appeal.

In a careful review of the authorities, Lord Justice May considered that it would be reaching for the moon to try to provide a formulation of the law that could deal with every circumstance that might arise. However, the House of Lords' decision in Smith -v- Bush made it clear that a professionally qualified person giving advice may owe a duty of care to the recipient of that advice in addition to the duty owed to his employers.

In Lord Justice May's view there was nothing in the representations made on behalf of Babb that succeeded in extricating him from such a duty of care. It was not relevant to the question under consideration that Babb was not insured.

Commenting on the impact of his decision, Lord Justice May noted that prudent professional employees will obviously want to ensure they are covered personally by their employers' insurance and may need to take steps to obtain personal insurance if that cover does not continue after their employment ends.