Buyer Beware!

The recent Supreme Court decision in Walsh v Jones Lang Lasalle should be of considerable interest to the commercial property sector.

The Supreme Court, overturning a decision of the High Court, decided that a property agent was not liable to a purchaser for an error in its sales brochure which resulted in the size of the property being over-stated by approximately 8%. The error was only discovered by the purchaser after the purchase.

The purchaser sued and was successful in the High Court, despite the principle of caveat emptor, or ‘Buyer Beware’, and the disclaimer printed on the sales brochure which sought to limit the agent’s liability.

The High Court decision was, understandably, viewed with concern by agents, surveyors and service providers to the property industry.

The Supreme Court has now overturned the High Court decision, by a majority (3:2) of the Court, at the same time clarifying the law as it relates to duty of care and negligent misstatements in these circumstances.

There are two judgments; the majority decision delivered by Mr Justice O’Donnell, and the dissenting decision delivered by Mr. Justice MacMenamin. Both decisions provide interesting insights and clarity, and demonstrate just how finely balanced the issues were in this case

Duty of Care

In order to establish negligence, the purchaser Mr Walsh had to establish that there was a duty of care owed to him by the agents. The High Court accepted that there was a “special relationship” between Mr Walsh and the agent which was sufficiently proximate to give rise to a duty of care. The High Court found that the agent breached its duty of care in providing the purchaser with inaccurate information in relation to the floor area of the property. The Court found that the agent was liable for the losses incurred by the purchaser arising from this negligent act or misstatement, and that the disclaimer printed on the sales brochure did not have the effect of limiting the agent’s liability to the purchaser.

Negligent Misstatement

A negligent act has a limited range of consequences or “victims” whereas a negligent misstatement presents the possibility of unlimited liability, particularly where, as with this case, the statement is contained within a publication which is made available to the public at large. In such circumstances, any number of people may claim or allege to have been adversely affected by the inaccuracy.

The majority decision of the Supreme Court outlines some examples of how this is relevant in this case. For example, the over-statement of the size of the property might have caused a potential purchaser to refrain from bidding for the property, on the misunderstanding that the property was larger than his or her needs. Or an under-bidder may have lost out because he or she bid on the actual size of the property, whereas the purchaser bid on a property he assumed was 8% larger than it was.

The Court was concerned that, in an effort to achieve a broad sense of justice, the High Court had blurred the lines between negligent acts and negligent misstatements, and that it was necessary for the Supreme Court to apply a more stringent test in relation to the latter. The Court held: “If all this Court had to do was to make broad ad hoc conclusions on equally broad judgments made in individual cases in a trial court, then the jurisprudence in this area would quickly become little more than an exercise of unbounded discretion normally stigmatised as the antithesis of justice according to law.” The Supreme Court reaffirmed the line of authority established by Hedley Byrne v Heller, distinguishing between negligent misstatements and negligent acts.

Disclaimer

The disclaimer printed on the bottom of the property brochure stated: “Whist every care has been taken in the preparation of these particulars, and they are believed to be correct, they are not warranted and intending purchaser (sic)/lessees should satisfy themselves as to the correctness of the information given.” Very different views were given in the High Court and Supreme Court as to whether this disclaimer was effective to limit the agent’s liability.

The High Court dismissed the disclaimer, finding on the evidence that it was not common or customary practice in the commercial property market for prospective purchasers to undertake their own measurements prior to purchase, and noted that no other prospective purchasers did so in this case. The dissenting decision in the Supreme Court dismissed the disclaimer on the basis that it was written in “very small” font and confirmed that the agent had taken “every care” in preparing the particulars (including measurements).

The majority (and therefore authoritative) decision of the Supreme Court was that the disclaimer could not be viewed “as anything other than an assertion, unsurprisingly to anyone in the property market, that Jones Lang Lasalle was not responsible for the accuracy of anything contained in the particulars”.

The Court referred in this regard to the decision of Lord Justice Hobhouse in McCullagh v. Lane Fox and Partners Ltd, in which it was stated that a disclaimer: “Implicitly tells the recipient of the representation that if he chooses to rely upon it he must realise that the maker is not accepting responsibility for the accuracy of the representation.”

The Court took particular note of the fact that the purchaser intended to let a portion of the property to a third party tenant, and held that it was imprudent of him, given the importance of the rental value of the property, not to have made explicit pre-contract enquiries to determine the floor area, or to have secured appropriate contractual warranties in relation to the floor area of the premises. The Court noted that the floor area may not have had the same significance to other prospective purchasers.

Conclusion

The issues in this case were very finely balanced, but ultimately the Supreme Court has signalled the need for prospective purchasers to exercise prudence when acquiring property, even in a faced-paced commercial property environment when competitive bidding may be the norm. The Supreme Court has confirmed that an appropriately drafted disclaimer can effectively limit liability, and that the spirit of caveat emptor still reigns.