On guard

Professionals may be heading for troubled waters as immunities evaporate and areas of liability continue to expand. Mark O&#39Callaghan reports on four cases that lawyers should be aware of

This year the Court of Appeal attached personal liability to employed surveyors, extended solicitors&#39 duties to non-clients and held that project managers in the construction industry could be liable for negligent misstatements made in the tendering process. The final case in the following round-up illustrates that even where professional defendants escape liability in negligence, they may still be found to have breached fiduciary duties.
Diana Eileen Merrett v John RH Babb, 15/2/2001
A majority in the Court of Appeal held that a surveyor employed by a firm owes a personal duty of care to the purchaser of a house separate from that owed by his employer. John Babb, the defendant surveyor, had been negligent in his valuation of the house, the report having been commissioned by a building society. Clive Walker Associates, Babb&#39s employers at the time of the valuation, had been adjudged bankrupt and the trustees in bankruptcy cancelled the firm&#39s professional indemnity insurance, hence the claim against Babb personally.
Lord Jusice May, for the majority, held that this case was barely distinguishable from Harris v Wyre Forest District Council and that Babb had assumed responsibility for the preparation of the report knowing that the purchaser was likely to rely on it. Lord Justice Aldous, in a powerful dissent, disagreed. He thought that the purchaser could not claim to have relied on an assumption of responsibility on the part of Babb, with whom the purchaser had never met nor communicated. The Court of Appeal&#39s decision in this case raises serious issues in relation to personal professional indemnity insurance. If employed professionals may be sued in their personal capacity, taking out personal insurance against the risk of such claims may become necessary. As Judge May pointed out in his judgment: “Prudent professional employees will obviously want to ensure that they are covered personally by their employer&#39s insurance, and [if not] take steps to obtain personal insurance.” Babb&#39s application for leave to appeal is currently being considered by the Judicial Committee.
Paul Teverson (24 Old Buildings) instructed by Hine Downing for Merrett; Ronald Walker QC (12 King&#39s Bench Walk) and Steven Ball (11 Old Square) instructed by Howard & Over for Babb.

Roy Dean v Allin & Watts, 23/5/2001
The central issue in this appeal was whether solicitors, when acting for a borrower, owed a duty of care to the lender in procuring security for the lender. The solicitors had failed to ensure that the grant of security was recorded in writing, as is required by Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. When the borrower defaulted, the &#39security&#39 was worthless and the grant invalid.
At first instance, Mrs Justice Arden held that to impose such a duty would not satisfy the third criterion in the Caparo test (ie it would not be fair, just and reasonable). The appeal succeeded, however, with the Court of Appeal holding that each of the three criteria in Caparo had been satisfied, that the solicitors had assumed responsibility towards the claimant and that there were no policy reasons to negate a duty of care. The court saw its decision merely as an incremental development of solicitors&#39 duties to non-clients.
In reaching its conclusion, the court drew on the decision of the House of Lords in White v Jones and of the Court of Appeal in Gorham v British Telecommunications. However, the claimants in each of these cases were disappointed beneficiaries rather than parties on the other side of the transaction in question. At the time of writing, the House of Lords is considering whether or not to grant Allin and Watts permission to appeal.
Bernard Weatherill QC (3 New Square) instructed by Coles Miller for the appellant/ claimant; Alistair Norris QC (5 Stone Buildings) instructed by Bond Pearce for the respondent/defendant.

J Jarvis & Sons Ltd v (1) Castle Wharf DevelopmentsLtd, (2) Gleeds Management Services Ltd, (3) Franklin Ellis Architects Ltd, 9/1/2001
J Jarvis & Sons was the successful tenderer to build an office development in Nottingham. The defendants were the developer and its surveyors and architects. On appeal the claim was unsuccessful, although only because there was an absence of reliance on the project manager&#39s negligent misstatements.
Lord Justice Gibson, in giving the leading judgment of the court, recognised that historically there has been judicial reluctance to impose duties of care on a professional agent acting within his authority in the tendering process. He referred in particular to the decision in Gran Gelato v Richcliff. However, despite the reservations, and distinguishing Pacific Associates v Baxter, the court concluded that there was no reason in principle why a project manager could not be liable for negligent misstatements to induce a contractor to tender.
David Friedman QC and Duncan McCall (both of 4 Pump Court) instructed by Eversheds for Jarvis; Nicholas Dennys QC and Simon Lofthouse (both of Atkin Chambers) instructed by Freethcartwright for the first defendant; Roger Stewart (Four New Square) and Kate Vaughan-Neil (4 Pump Court) instructed by Kennedys for the second defendant; Nicholas Elliott QC (3 Verulam Buildings) and Fiona Sinclair (Four New Square) instructed by Reynolds Porter Chamberlain for the third defendant.

Longstaff & anor v Birtles & ors, 26/7/2001
This case highlights the fact that even in cases where professional defendants do not owe a common law duty of care to former clients, they may still owe certain fiduciary duties. The defendant was a solicitor who had acted on behalf of the claimants in respect of the proposed purchase of a guesthouse in Blackpool. When negotiations for the purchase broke down, the claimants, on the advice of the solicitor, entered into a partnership that later had to be dissolved after encountering serious financial difficulties. Unbeknown to the claimants, the defendant had a financial stake in that partnership. In the Court of Appeal, the claimants initially persisted with arguments that the defendant owed them a common law duty of care in negligence. During the course of the appeal, however, it became apparent that the court would not accept that a duty of care existed, as the claimants had ceased to be clients of the defendant once the retainer for the purchase of the guesthouse terminated. In light of this, the claimants were allowed an amendment to add a claim for breach of fiduciary duty.
The Court of Appeal held that there was a clear relationship of trust and confidence between the claimants and the defendant which did not cease on the termination of the retainer in respect of the purchase of the guesthouse. Given that the partnership venture gave rise to the clear possibility of a conflict of interest, the solicitor owed a paramount duty to observe fiduciary obligations. Specifically, this included a duty to insist that the claimants took independent legal advice.
Gregory Pipe (Chancery House Chambers, Leeds) instructed by Suttons for the claimants; Christopher Gibson QC (Four New Square) instructed by Crutes for the defendants.
This year the Court of Appeal attached personal liability to employed surveyors, extended solicitors&#39 duties to non-clients and held that project managers in the construction industry could be liable for negligent misstatements made in the tendering process. The final case in the following round-up illustrates that even where professional defendants escape liability in negligence, they may still be found to have breached fiduciary duties.