I was again today asked by a client, about the liabilities imposed on employees and professionals and in particular with regard to the ongoing liabiltes after the closure of a business.  More often than not the question has been asked following someone hearing about the case of Merrett v Babb which was heard in the courts in 2001.  I have set out the basis of this case below.

In 1992, a firm received instructions from a building society to inspect a property and to prepare and submit a mortgage valuation report based on that inspection. Mr. Babb carried out the inspection on behalf of the firm, where he was employed as a branch manager. Although Mr. Babb framed his report in the first person plural (i.e. on behalf of his firm), and a continuation sheet was written on the firm’s stationery, he gave the personal statement required by the Building Societies Act and signed both the pro-forma sheet and the continuation sheet, adding his own name and professional qualifications. The firm’s principal was made bankrupt two years after the report in question was prepared. Following this, the firm’s indemnity insurance cover was cancelled without run-off cover. After having bought the property, Ms Merrett had reason to find the valuation report was negligent and she sought redress from Mr. Babb as the signatory of the report. Mr. Babb accepted that the purchaser would place reliance on his report but argued that any duty he owed was to his employer and not to the purchaser, and that the latter had in fact relied on the report of the firm and not himself personally. The key question to be resolved, then, in the course of the judicial process was whether Mr. Babb, as an employee of the firm which had been engaged to carry out the required work, owed a direct duty of care to Ms Merrett. It was held that Mr. Babb was indeed the professional person on whom the purchaser relied to exercise proper skill and judgement. This was despite the fact that no reference to Mr. Babb was made in the mortgage report supplied by the building society to the purchaser. 

The RICS have published a webpage “Chartered surveyors in employment” which provides very useful reading on the subject of employees liability including directors of limited companies and those working in partnerships.