The issue of personal liability is a cause of much concern among professionals. Just how worried should you be about offering advice?
The Court of Appeal's decision in Merrett v Babb, finding a surveyor personally liable for a negligent valuation, has set alarm bells ringing through all walks of professional life.

The Bradford & Bingley Building Society instructed a firm of surveyors and valuers, Clive Walker Associates, to prepare a valuation report on a property in Falmouth. The building society was proposing to provide a mortgage to Miss Merrett and her mother for the purchase of the property. Mr Babb, a professionally qualified surveyor and valuer, was the employee of Clive Walker Associates who inspected the property and prepared a mortgage valuation report using the forms provided by the building society. A copy of the report was passed to Miss Merrett by the building society, although she had no idea that it was Mr Babb who had prepared the report.

Unfortunately, Mr Babb failed to identify settlement cracks in the property. As a result, the property was £14 500 over valued.

Most professionals and specialists are familiar with the concept of a 'duty of care', which arises by virtue of their position as qualified designers or advisers. This duty of care may be owed, not only to a direct client but also to anyone who might foreseeably be affected by any failure to act properly in accordance with the recognised standards of the profession in question. This concept has been applied in all manner of situations. It was already well established that a valuer or surveyor who prepares a mortgage valuation report, knowing that the report would be passed on to the purchasers of the property, would owe a duty of care to the purchasers on the basis that the purchasers would rely on the report. This would be the case even though they were not his client or even knew of his existence.

Personal liability
There was no dispute that Mr Babb had been negligent in preparing the report by failing to properly consider the defects in the property and the effect on its value. Ordinarily, Mr Babb's employers would have been found vicariously liable for his negligence and the losses suffered by Miss Merrett.

Unfortunately, for Mr Babb, his employers had been declared bankrupt and their professional indemnity insurance policy cancelled. There would have been little point in Miss Merrett trying to recover any losses from the trustee in bankruptcy, so she turned her attention to Mr Babb personally.

Mr Babb argued that it was his firm that had been instructed and paid by the building society to undertake the inspection. He also claimed Miss Merrett had no knowledge of his existence, and he had not actively assumed any responsibility to her, therefore he did not owe her a duty of care and was not liable for her losses.

The Court of Appeal agreed with the judge at first instance and found in favour of Miss Merrett on the basis that, as a professional man, Mr Babb must have realised that the purchaser would rely upon him exercising proper skill and judgement and that it was reasonable for the purchaser to do so. It may not have helped Mr Babb's cause by signing the report in his own name and seemingly assuming personal liability to Miss Merrett and her mother, but the court said that this was not a determining factor in finding Mr Babb liable to Miss Merrett.

The decision has been seen by some as the thin end of the wedge. Mr Babb was not a partner in Clive Walker Associates, he was simply an employee, and if surveyors and valuers can find themselves personally liable for the advice they have given, then why not also engineers, architects and perhaps even lawyers?

Keep it in perspective
So, how are professionals and specialists to guard against this? One solution would be for individuals to carry their own personal professional indemnity insurance to avoid the situation in which Mr Babb found himself. But before we all run off to our insurance brokers, there may yet be some crumbs of comfort to be gained from this decision.

This is not a new law and should be kept in perspective. The possibility of personal liability to third parties is already well established, but it is only likely to be a significant threat to individuals if: the employer no longer exists and there is no run off insurance cover; the insurers will not meet the claim; or there is insufficient insurance cover or an excess/deductible which the employer cannot meet.

Furthermore, the cases which have established this personal liability have all been decided on their own particular facts. The decisions are viewed as being a matter of public policy as they focus on the individual, who has suffered a loss as a result of reasonably relying on professional advice. Similar cases involving negligent valuations are confined to those concerning properties at the bottom end of the market, where the individuals are at most risk and probably do not have the financial means to carry out their own independent survey.

Consequently, one has to question whether the courts would be quite so eager to adopt the same approach in a commercial situation, where it would probably be reasonable to expect a purchaser, tenant or funder to engage their own independent advisers. If this is a reasonable expectation then the duty of care to such third parties should not arise.

In addition, commercial developments are invariably accompanied by a complex structure of collateral warranties which are designed to provide rights in favour of third parties and govern the extent to which professionals and specialists are liable for their acts and omissions. Where parties have taken the trouble to define their liabilities in this way, by means of creating contractual relationships, this should override any liability arising in the same way as was faced by Mr Babb.

There is no doubt that the decision against Babb has highlighted the potential personal liability of professionals and specialists. However, do not lose sight of the specific circumstances in which Mr Babb found himself liable nor the other factors which have been outlined above. These influence the extent to which professionals and specialists may find themselves personally liable for failure to live up to the expected standards of their trades and professions.