Q.
What if your client asked you to give a honest opinion that the property is a good buy? And, you relied upon a report by your Valuer friend to show to him that it is below market price. You specifically said that the Valuer report is for another potential purchaser before him, and you disclaim the content of the valuation report as it is not yours.
However, soon after the purchase, he discovered that the true value is only half of the purchased price. He takes an action again you and the Valuer. What wrong, if any, is there of you and the Valuer?
This is a case of negligence. In more detail, a case of professional negligence. The two parties at wrong are - you and your Valuer friend.
1. Foreseeability (that the report will be used to make a certain decision)
2. Proximity (that there is close relation - like client and agent, between the user and the writer of the report)
3. Fairness (that the result of using the report had direct cause to the loss reasonable and logical)
However, you have acted as agent to the buyer - thus certainly Contracts Act 1950 also comes into play.
Notwithstanding, tort is involved in the negligence (economic loss) part and contract is involved in duty of agent towards principal.
The 1st party - you.
As an agent, you owe your client fiduciary duty. This is a wrong under contractual relationship. As an agent, you owe your principal duty. There is no doubt that he is in proximal relationship of a client. You are an agent to him - as he is your principal. He came to rely on your professional opinion to purchase the property, and relied upon you as a professional, or expert of the property trade.
However, you had disclaimed your position that the report was not for him, as it was for another prospect before him. Nevertheless, you still owe him a duty of care. He has suffered a loss substantial enough to be view as significant at 50%.
Putting away any duress of misrepresentation* (as you did specify that it was not for him), and had not influenced or induced him (undue influence) and there was no fraud or coercion indeed in the transaction, his legal action to recover the 50% loss against you might be only directed at professional negligence on your part. There was some element of a contract being concluded in bad taste, or lost of faith but the process of contract was nevertheless completed. Both the buyer and you did not have any knowledge that the price was inflated. So, claim by any flaw on the contract part is on the duty of agent - particular to Section 165 of Contracts Act 1950 - Skill and diligence required from Agent. In particular, the negligence of you as an agent.
For him to prove negligence, he would have to prove that you had duty of care, and there is proximal causality in the damage he sustained as well as being fair to you as you had acted as his direct agent during that transaction.
On all these tests, you are indeed in the negligence position. If he could not claim on breach of contract (did not provide due diligent as an agent), he could claim in Tort. Although he did not suffer any physical harm (he was not hurt physically), he suffered pure economic loss. Thus, he could rely on case laws below on proof of 'duty of care'.
*unintentional misrepresentation
The expert party - your Valuer friend.
The report from your Valuer friend was never produced for him - it was for another purchaser. Hence, the proximity claim might be turned down. Although there is a tendency that the report was intended for the public - thus, the foreseeable use by anyone else, it was a point for the claimant to prove.
The proximity claim is also not sustainable. The Valuer friend does not receive a demand for valuation report by him, and never received any fee for the service. Therefore, the report was construed to be no immediate foreseeable use by this buyer.
The fairness test also does not seem to apply on the Valuer as he never could know his valuation report might be used for what purpose or when. As value of a property changes with multiple factors, it would be unfair to him that his report be used outside the circumstances and time frame stated by that report.
However, the court has been higher in 'duty of care' for professional negligence. In the context above, although the valuation report is not for this buyer, the duty of performing a good valuation cannot err from the market value as much as 50%! So, according to case law, most of this 'duty of care' on the negligence of a professional expert is more stringent. Notwithstanding, the test by applying Hedley Byrne to establish the proximity relationship is as below:
- The person who relied on the information trusted the person who made the statement to take such care as the circumstances required
- It was reasonable for the person who relied on the information to do so
- The person who made the information gave advice knowing of this trust
- The advice was given in response to a specific enquiry
- The information was used for the purpose of the enquiry
- There was no disclaimer of responsibility by the person who made the statement
According to Hedley Byrne, the learned judges held the expert opinion is a duty of care irrespective of proximity or foreseeability tests, however the duty of care should be established with the above tests.
And, your Valuer friend had no idea who this new buyer was - they have never known each other. Furthermore, he was never consulted to the specific requirement of this buyer. Hence, he is not liable for the claim.
Cases important to this argument:
Key determinants in James MacNaughton Paper:
Lord Neill set out six headings to establish liability:
(1) the purpose for which the statement was made.
(2) the purpose for which the statement was communicated .
(3) the relationship between the advisor, the advisee and any relevant third party.
(4) the size of any class to which the advisee belongs.
(5) the state of knowledge of the advisor.
(6) reliance by the advisee.
Key determination in Hedley Byrne:
Lord Morris of Borth-y-Gest said: ‘it should now be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference. Furthermore, if in a sphere in which a person is so placed that they could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise.
So, in this case this buyer is not the 'another person'. This 'another person' - the previous buyer - is in proximal relation to the writer of the report - the Valuer, not the current buyer. Thus, there is NO liability for your friend the Valuer.
Ref: