HOUSE OF LORDS
SMITH v ERIC S BUSH; HARRIS v WYRE FOREST DISTRICT  1 AC 831
April 20 1989
Editor’s italics. Comments in red.
I shall deal with this appeal [Smith v. Eric S. Bush] first because its facts are similar to hundreds of
thousands of house purchases that take place every year. It concerns the purchase of a house at the
lower end of the market with the assistance of finance provided by a building society. The
purchaser applies for finance to the building society. The building society is required by statute to
obtain a valuation of the property before it advances any money ... to protect the depositors who
entrust their savings to the building society. The building society therefore requires the purchaser to
pay a valuation fee to cover or, at least, to defray the cost of obtaining a valuation. This is a modest
sum and certainly much less than the cost of a full structural survey, in the present case it was
£36.89. If the purchaser pays the valuation fee, the building society instructs a valuer who inspects
the property and prepares a report for the building society giving his valuation of the property.
The inspection carried out is a visual one designed to reveal any obvious defects in the property
which must be taken into account when comparing the value of the property with other similar
properties in the neighbourhood. If the valuation shows that the property provides adequate security
for the loan, the building society will lend the money necessary for the purchaser to go ahead ...
The building society may either instruct an independent firm of surveyors to make the valuation or
use one of its own employees. In the present case, the building society instructed the appellants, an
independent firm of surveyors. I will consider whether it makes any difference if an ‘in-house’
valuer is instructed when I come to deal with the other appeal. The building society may or may not
send a copy of the valuer’s report to the purchaser. In this case the building society was the Abbey
National and they did send a copy of the report to the purchaser, Mrs Smith. I understand that this is
now common practice among building societies. The report, however, contained in red lettering and
in the clearest terms a disclaimer of liability for the accuracy of the report covering both the
building society and the valuer. Again, I understand that it is common practice for other building
societies to incorporate such a disclaimer of liability.
Mrs Smith did not obtain a structural survey of the property. She relied upon the valuer’s report to
reveal any obvious serious defects in the house she was purchasing. It is common ground that she
was behaving in the same way as the vast majority of purchasers of modest houses. They do not go
to the expense of obtaining their own structural survey, they rely on the valuation to reveal any
obvious serious defects and take a chance that there are no hidden defects that might be revealed by
a more detailed structural survey. The valuer’s report said ‘the property has been modernised to a
fair standard ... no essential repairs are required’ and it valued the property at £16,500. If reasonable
skill and care had been employed when the inspection took place, it would have revealed that as a
result of removing the chimney breasts in the rooms the chimneys had been left dangerously
Unaware of this defect and relying on the valuer’s report, Mrs Smith bought the house for £18,000
with the assistance of a loan of £3,500 from the building society. After she had been living in the
house for about 18 months, one of the chimney flues collapsed and crashed through the bedroom
ceiling and floor causing damage for which Mrs Smith was awarded £4,379.97 against the
surveyors who had carried out the valuation.
Mr Hague, on behalf of the surveyors, conceded that on the facts of this case the surveyors owed a
duty of care to Mrs Smith unless they were protected by the disclaimer of liability. He made this
concession, he said, because the surveyors knew that their report was going to be shown to Mrs
Smith and that Mrs Smith would, in all probability, rely upon it, which two factors would create the
necessary proximity to found the duty of care. He submitted, however, that if the surveyor did not
know that his report would be shown to the purchaser, no duty of care would arise and that the
decision in Yianni v Edwin Evans & Sons  QB 438 was wrongly decided. I shall defer
consideration of this question to the second appeal for it does not arise on the facts of the present
case. Suffice it to say, for the moment, that on the facts of the present case it is my view that the
concession made by Mr Hague is correct. At common law, whether the duty to exercise reasonable
care and skill is founded in contract or tort, a party is as a general rule free, by the use of
appropriate wording, to exclude liability for negligence in discharge of the duty. The disclaimer of
liability in the present case is prominent and clearly worded and on the authority of Hedley Byrne &
Co Ltd v Heller & Partners Ltd  AC 465, in so far as the common law is concerned effective
to exclude the surveyors’ liability for negligence. The question then is whether the Unfair Contract
Terms Act 1977 bites upon such a disclaimer. In my view it does.
The Court of Appeal, however, accepted an argument based upon the definition of negligence
contained in section 1(1) of the Act of 1977 which provides:
"For the purposes of this part of this Act, 'negligence'
means the breach - (a) of any obligation, arising from the
express or implied terms of a contract, to take reasonable
care or exercise reasonable skill in the performance of the
contract; (b) of any common law duty to take reasonable
care or exercise reasonable skill (but not any stricter duty);
(c) of the common duty of care imposed by the Occupiers'
Liability Act 1957 or the Occupiers' Liability Act (Northern
They held that, as the disclaimer of liability would at common law have prevented any duty to take
reasonable care arising between the parties, the Act had no application. In my view this
construction fails to give due weight to the provisions of two further sections of the Act. Section
"In relation to a notice (not being a notice having
contractual effect), the requirement of reasonableness under
this Act is that it should be fair and reasonable to allow
reliance on it, having regard to all the circumstances
obtaining when the liability arose or (but for the notice)
would have arisen."
And section 13(1):
"To the extent that this part of this Act prevents the
exclusion or restriction of any liability it also prevents - (a)
making the liability or its enforcement subject to restrictive
or onerous conditions; (b) excluding or restricting any right
or remedy in respect of the liability, or subjecting a person
to any prejudice in consequence of his purusing any such
right or remedy; (c) excluding or restricting rules of
evidence or procedure; and (to that extent) sections 2 and 5
to 7 also prevent excluding or restricting liability by
reference to terms and notices which exclude or restrict the
relevant obligation or duty."
I read these provisions [UCTA 1977] as introducing a ‘but for’ test in relation to the notice
excluding liability. They indicate that the existence of the common law duty to take reasonable care,
referred to in section 1(1)(b), is to be judged by considering whether it would exist ‘but for’ the
notice excluding liability. The result of taking the notice into account when assessing the existence
of a duty of care would result in removing all liability for negligent mis-statements from the
protection of the Act. It is permissible [connoisseurs of statutory interpretation, please note!] to
have regard to the second report of the Law Commission on Exemption Clauses (1975) (Law Com
No 69) which is the genesis of the Unfair Contract Terms Act 1977 as an aid to the construction of
the Act. Paragraph 127 of that report reads:
‘Our recommendations in this part of the report are intended to apply to exclusions of liability for
negligence where the liability is incurred in the course of a person’s business. We consider that they
should apply even in cases where the person seeking to rely on the exemption clause was under no
legal obligation (such as a contractual obligation) to carry out the activity. This means that, for
example, conditions attached to a licence to enter on to land, and disclaimers of liability made
where information or advice is given, should be subject to control ...’
I have no reason to think that Parliament did not intend to follow this advice and the wording of the
Act is, in my opinion, apt to give effect to that intention ...
Finally, the question is whether the exclusion of liability contained in the disclaimer satisfies the
requirement of reasonableness provided by section 2(2) of the Act of 1977. The meaning of
reasonableness and the burden of proof are both dealt with in section 11(3) which provides: ‘In
relation to a notice (not being a notice having contractual effect), the requirement of reasonableness
under this Act is that it should be fair and reasonable to allow reliance on it, having regard to all the
circumstances obtaining when the liability arose or (but for the notice) would have arisen.’ It is
clear, then, that the burden is upon the surveyor to establish that in all the circumstances it is fair
and reasonable that he should be allowed to rely upon his disclaimer of liability.
I believe that it is impossible to draw up an exhaustive list of the factors which must be taken into
account when a judge is faced with this very difficult decision. Nevertheless, the following matters
should, in my view, always be considered.
1. Were the parties of equal bargaining power. If the court is dealing with a one-off situation
between parties of equal bargaining power the requirement of reasonableness would be more easily
discharged than in a case such as the present where the disclaimer is imposed upon the purchaser
who has no effective power to object.
2. In the case of advice would it have been reasonably practicable to obtain the advice from an
alternative source taking into account considerations of costs and time. In the present case it is
urged on behalf of the surveyor that it would have been easy for the purchaser to have obtained his
own report on the condition of the house, to which the purchaser replies, that he would then be
required to pay twice for the same advice and that people buying at the bottom end of the market,
many of whom will be young first-time buyers, are likely to be under considerable financial
pressure without the money to go paying twice for the same service.
3. How difficult is the task being undertaken for which liability is being excluded. When a very
difficult or dangerous undertaking is involved there may be a high risk of failure which would
certainly be a pointer towards the reasonableness of excluding liability as a condition of doing the
work. A valuation, on the other hand, should present no difficulty if the work is undertaken with
reasonable skill and care. It is only defects which are observable by a careful visual examination
that have to be taken into account and I cannot see that it places any unreasonable burden on the
valuer to require him to accept responsibility for the fairly elementary degree of skill and care
involved in observing, following-up and reporting on such defects. Surely it is work at the lower
end of the surveyor’s field of professional expertise.
4. What are the practical consequences of the decision on the question of reasonableness. This must
involve the sums of money potentially at stake and the ability of the parties to bear the loss
involved, which, in its turn, raises the question of insurance. There was once a time when it was
considered improper even to mention the possible existence of insurance cover in a lawsuit. But
those days are long past. Everyone knows that all prudent, professional men carry insurance, and
the availability and cost of insurance must be a relevant factor when considering which of two
parties should be required to bear the risk of a loss. We are dealing in this case with a loss which
will be limited to the value of a modest house and against which it can be expected that the surveyor
will be insured.
Bearing the loss will be unlikely to cause significant hardship if it has to be borne by the surveyor
but it is, on the other hand, quite possible that it will be a financial catastrophe for the purchaser
who may be left with a valueless house and no money to buy another. If the law in these
circumstances denies the surveyor the right to exclude his liability, it may result in a few more
claims but I do not think so poorly of the surveyor’s profession as to believe that the floodgates will
be opened ...
I would not, however, wish it to be thought that I would consider it unreasonable for professional
men in all circumstances to seek to exclude or limit their liability for negligence. Sometimes
breathtaking sums of money may turn on professional advice against which it would be impossible
for the advisor to obtain adequate insurance cover and which would ruin him if he were to be held
personally liable. In these circumstances it may indeed be reasonable to give the advice upon a basis
of no liability or possibly of liability limited to the extent of the adviser’s insurance cover.
In addition to the foregoing four factors, which will always have to be considered, there is in this
case the additional feature that the surveyor is only employed in the first place because the
purchaser wishes to buy the house and the purchaser in fact provides or contributes to the
surveyor’s fees. No one has argued that if the purchaser had employed and paid the surveyor
himself, it would have been reasonable for the surveyor to exclude liability for negligence, and the
present situation is not far removed from that of a direct contract between the surveyor and the
purchaser. The evaluation of the foregoing matters leads me to the clear conclusion that it would not
be fair and reasonable for the surveyor to be permitted to exclude liability in the circumstances of
this case. I would therefore dismiss this appeal.
It must, however, be remembered that this is a decision in respect of a dwelling house of modest
value in which it is widely recognised by surveyors that purchasers are in fact relying on their care
and skill. It will obviously be of general application in broadly similar circumstances. But I
expressly reserve my position in respect of valuations of quite different types of property for
mortgage purposes, such as industrial property, large blocks of flats or very expensive houses. In
such cases it may well be that the general expectation of the behaviour of the purchaser is quite
different. With very large sums of money at stake prudence would seem to demand that the
purchaser obtain his own structural survey to guide him in his purchase and, in such circumstances
with very much larger sums of money at stake, it may be reasonable for the surveyors valuing on
behalf of those who are providing the finance either to exclude or limit their liability to the
1. The purpose of this Directive is to approximate the laws, regulations and administrative
provisions of the Member States relating to unfair terms in contracts concluded between a seller
or supplier and a consumer.
2. The contractual terms which reflect mandatory statutory or regulatory provisions and the
provisions or principles of international conventions to which the Member States or the
Community are party, particularly in the transport area, shall not be subject to the provisions of
For the purposes of this Directive:
(a) 'unfair terms' means the contractual terms defined in Article 3;
(b) 'consumer' means any natural person who, in contracts covered by this Directive, is acting for
purposes which are outside his trade, business or profession;
(c) 'seller or supplier' means any natural or legal person who, in contracts covered by this
Directive, is acting for purposes relating to his trade, business or profession, whether publicly
owned or privately owned.
Unfair Contract Terms Act 1977
Amendment of Law for England and Wales and Northern Ireland
1 Scope of Part I
(1) For the purposes of this Part of this Act, “negligence” means the breach—
(a) of any obligation, arising from the express or implied terms of a contract, to take reasonable care
or exercise reasonable skill in the performance of the contract;
(b) of any common law duty to take reasonable care or exercise reasonable skill (but not any stricter
(c) of the common duty of care imposed by the Occupiers’ Liability Act 1957 or the Occupiers’
Liability Act (Northern Ireland) 1957.
(2) This Part of this Act is subject to Part III; and in relation to contracts, the operation of sections 2
to 4 and 7 is subject to the exceptions made by Schedule 1.
(3) In the case of both contract and tort, sections 2 to 7 apply (except where the contrary is stated in
section 6(4)) only to business liability, that is liability for breach of obligations or duties arising—
(a) from things done or to be done by a person in the course of a business (whether his own business
or another’s); or
(b) from the occupation of premises used for business purposes of the occupier;
and references to liability are to be read accordingly but liability of an occupier of premises for
breach of an obligation or duty towards a person obtaining access to the premises for recreational or
educational purposes, being liability for loss or damage suffered by reason of the dangerous state of
the premises, is not a business liability of the occupier unless granting that person such access for
the purposes concerned falls within the business purposes of the occupier.
(4) In relation to any breach of duty or obligation, it is immaterial for any purpose of this Part of
this Act whether the breach was inadvertent or intentional, or whether liability for it arises directly
2 Negligence liability
(1) A person cannot by reference to any contract term or to a notice given to persons generally or to
particular persons exclude or restrict his liability for death or personal injury resulting from
(2) In the case of other loss or damage, a person cannot so exclude or restrict his liability for
negligence except in so far as the term or notice satisfies the requirement of reasonableness.
(3) Where a contract term or notice purports to exclude or restrict liability for negligence a person’s
agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of
3 Liability arising in contract
(1) This section applies as between contracting parties where one of them deals as consumer or on
the other’s written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term—
(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the
(b) claim to be entitled—
(i) to render a contractual performance substantially different from that which was reasonably
expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all,
except in so far as (in any of the cases mentioned above in this subsection) the contract term
satisfies the requirement of reasonableness.
4 Unreasonable indemnity clauses
(1) A person dealing as consumer cannot by reference to any contract term be made to indemnify
another person (whether a party to the contract or not) in respect of liability that may be incurred by
the other for negligence or breach of contract, except in so far as the contract term satisfies the
requirement of reasonableness.
(2) This section applies whether the liability in question—
(a) is directly that of the person to be indemnified or is incurred by him vicariously;
(b) is to the person dealing as consumer or to someone else.
5 "Guarantee" of consumer goods
(1) In the case of goods of a type ordinarily supplied for private use or consumption, where
loss or damage—
(a) arises from the goods proving defective while in consumer use; and
(b) results from the negligence of a person concerned in the manufacture or distribution of the
liability for the loss or damage cannot be excluded or restricted by reference to any contract term or
notice contained in or operating by reference to a guarantee of the goods.
(2) For these purposes—
(a) goods are to be regarded as “in consumer use” when a person is using them, or has them in his
possession for use, otherwise than exclusively for the purposes of a business; and
(b) anything in writing is a guarantee if it contains or purports to contain some promise or assurance
(however worded or presented) that defects will be made good by complete or partial replacement,
or by repair, monetary compensation or otherwise.
(3) This section does not apply as between the parties to a contract under or in pursuance of which
possession or ownership of the goods passed.
6 Sale and hire-purchase
(1) Liability for breach of the obligations arising from—
(a) section 12 of the Sale of Goods Act 1979 (seller’s implied undertakings as to title, etc);
(b) section 8 of the Supply of Goods (Implied Terms) Act 1973 (the corresponding thing in relation
cannot be excluded or restricted by reference to any contract term.
(2) As against a person dealing as consumer, liability for breach of the obligations arising from—
(a) section 13, 14 or 15 of the 1979 Act (seller’s implied undertakings as to conformity of goods
with description or sample, or as to their quality or fitness for a particular purpose);
(b) section 9, 10 or 11 of the 1973 Act (the corresponding things in relation to hire-purchase),
cannot be excluded or restricted by reference to any contract term.
(3) As against a person dealing otherwise than as consumer, the liability specified in subsection (2)
above can be excluded or restricted by reference to a contract term, but only in so far as the term
satisfies the requirement of reasonableness.
(4) The liabilities referred to in this section are not only the business liabilities defined by section
1(3), but include those arising under any contract of sale of goods or hire-purchase agreement.
7 Miscellaneous contracts under which goods pass
(1) Where the possession or ownership of goods passes under or in pursuance of a contract not
governed by the law of sale of goods or hire-purchase, subsections (2) to (4) below apply as regards
the effect (if any) to be given to contract terms excluding or restricting liability for breach of
obligation arising by implication of law from the nature of the contract.
(2) As against a person dealing as consumer, liability in respect of the goods’ correspondence with
description or sample, or their quality or fitness for any particular purpose, cannot be excluded or
restricted by reference to any such term.
(3) As against a person dealing otherwise than as consumer, that liability can be excluded or
restricted by reference to such a term, but only in so far as the term satisfies the requirement of
(3A) Liability for breach of the obligations arising under section 2 of the Supply of Goods and
Services Act 1982 (implied terms about title etc in certain contracts for the transfer of the property
in goods) cannot be excluded or restricted by references to any such term.
(4) Liability in respect of—
(a) the right to transfer ownership of the goods, or give possession; or
(b) the assurance of quiet possession to a person taking goods in pursuance of the contract,
cannot (in a case to which subsection (3A) above does not apply) be excluded or restricted by
reference to any such term except in so far as the term satisfies the requirement of reasonableness.
(5) This section does not apply in the case of goods passing on a redemption of trading stamps
within the Trading Stamps Act 1964 or the Trading Stamps Act (Northern Ireland) 1965.
(This section substitutes the Misrepresentation Act 1967, s 3 and the Misrepresentation Act
(Northern Ireland) 1967, s 3)
9 Effect of breach
(1) Where for reliance upon it a contract term has to satisfy the requirement of reasonableness, it
may be found to do so and be given effect accordingly notwithstanding that the contract has been
terminated either by breach or by a party electing to treat it as repudiated.
(2) Where on a breach the contract is nevertheless affirmed by a party entitled to treat it as
repudiated, this does not of itself exclude the requirement of reasonableness in relation to any
10 Evasion by means of secondary contract
A person is not bound by any contract term prejudicing or taking away rights of his which arise
under, or in connection with the performance of, another contract, so far as those rights extend to
the enforcement of another’s liability which this Part of this Act prevents that other from excluding
11 The "reasonableness" test
(1) In relation to a contract term, the requirement of reasonableness for the purposes of this Part of
this Act, section 3 of the Misrepresentation Act 1967 and section 3 of the Misrepresentation Act
(Northern Ireland) 1967 is that the term shall have been a fair and reasonable one to be included
having regard to the circumstances which were, or ought reasonably to have been, known to or in
the contemplation of the parties when the contract was made.
(2) In determining for the purposes of section 6 or 7 above whether a contract term satisfies the
requirement of reasonableness, regard shall be had in particular to the matters specified in Schedule
2 to this Act; but this subsection does not prevent the court or arbitrator from holding, in accordance
with any rule of law, that a term which purports to exclude or restrict any relevant liability is not a
term of the contract.
(3) In relation to a notice (not being a notice having contractual effect), the requirement of
reasonableness under this Act is that it should be fair and reasonable to allow reliance on it, having
regard to all the circumstances obtaining when the liability arose or (but for the notice) would have
(4) Where by reference to a contract term or notice a person seeks to restrict liability to a specified
sum of money, and the question arises (under this or any other Act) whether the term or notice
satisfies the requirement of reasonableness, regard shall be had in particular (but without prejudice
to subsection (2) above in the case of contract terms) to—
(a) the resources which he could expect to be available to him for the purpose of meeting the
liability should it arise; and
(b) how far it was open to him to cover himself by insurance.
(5) It is for those claiming that a contract term or notice satisfies the requirement of reasonableness
to show that it does.
12 "Dealing as consumer"
(1) A party to a contract “deals as consumer” in relation to another party if—
(a) he neither makes the contract in the course of a business nor holds himself out as doing so; and
(b) the other party does make the contract in the course of a business; and
(c) in the case of a contract governed by the law of sale of goods or hire purchase, or by section 7 of
this Act, the goods passing under or in pursuance of the contract are of a type ordinarily supplied
for private use or consumption.
(1A) But if the first party mentioned in subsection (1) is an individual paragraph (c) of that
subsection must be ignored.
(2) But the buyer is not in any circumstances to be regarded as dealing as consumer—
(a) if he is an individual and the goods are second hand goods sold at public auction at which
individuals have the opportunity of attending the sale in person;
(b) if he is not an individual and the goods are sold by auction or by competitive tender.
(3) Subject to this, it is for those claiming that a party does not deal as consumer to show that he
13 Varieties of exemption clause
(1) To the extent that this Part of this Act prevents the exclusion or restriction of any liability it also
(a) making the liability or its enforcement subject to restrictive or onerous conditions;
(b) excluding or restricting any right or remedy in respect of the liability, or subjecting a person to
any prejudice in consequence of his pursuing any such right or remedy;
(c) excluding or restricting rules of evidence or procedure;
and (to that extent) sections 2 and 5 to 7 also prevent excluding or restricting liability by reference
to terms and notices which exclude or restrict the relevant obligation or duty.
(2) But an agreement in writing to submit present or future differences to arbitration is not to be
treated under this Part of this Act as excluding or restricting any liability.