Property purchasers beware: Recent court ruling highlights importance of pre-contract due diligence

As the property market continues to unwind from the downturn, and to enter a new phase, the importance of purchaser pre-contract due diligence was reinforced by the Supreme Court in a landmark ruling published this month in the case of Walsh –v- Jones Lang Lasalle Ltd [2017] IESC 38.

Key Facts

Jones Lang Lasalle ("JLL") was engaged some years ago by the vendor as estate agent in the sale of commercial premises with development potential in Upper Gardiner Street, Dublin (the “Premises”). JLL prepared a sale brochure (the “Brochure”) in respect of the Premises which provided information as to location, title, tenure and scale of the Premises.

Walsh, a property developer, was interested in the Premises and received the Brochure on a visit to the Premises from JLL. Within the Brochure, it was stated that the Premises measured 23,057 sq ft. and it also contained the following disclaimer:

“Whilst every care has been taken in the preparation of these particulars, and they are believed to be correct, they are not warranted and intending puchusers (sic) /lessees should satisfy themselves as to the correctness of the information given."

The core fact in this case was that the quoted measurement was incorrect. 

Walsh made an initial offer on the Premises and commissioned a survey of the condition of the Premises which did not involve any measurement of the Premises. Given the level of interest in the Premises, Walsh made a "back of the envelope calculation" based on the above measurement to estimate the value and rental value of the Property. He submitted a bid which was successful.

Walsh later secured a tenant for the first floor and it was then that he discovered that the first floor only measured 8,573 sq feet. Walsh issued proceedings in the High Court against JLL for loss of expected rental income, claiming that JLL had a duty of care to ensure that information in their brochure was accurate and that they had breached the duty of care owed to him. 

High Court Decision

The case came before the High Court in 2006 and Quirke J upheld Walsh’s claim and awarded him €350,000 in damages against JLL. 

The High Court held that a duty of care was owed to Walsh as purchaser and the disclaimer in the Brochure, which contained the inaccurate information, did not operate to protect them. The High Court held that in order to be entitled to rely on the disclaimer, JLL would have to have drawn Walsh's attention to the fact that the measurements published were wholly unreliable. 

JLL appealed the decision to the Supreme Court against the finding of liability only; there was no appeal as to quantum.

Supreme Court Decision 

In a judgment published in June 2017 the Supreme Court overturned the High Court's decision in the matter.  In doing so, it found that the High Court was incorrect in its approach in applying the three step test approved in the United Kingdom in the case of Caparo Industries v Dickman [1992] 2 A.C. 605 and adopted in this jurisdiction in Glencar Explorations p.l.c.. -v- Mayo County Council [2002] I.R. 84 to establish the existence of a duty of care in this matter. The Court noted that the Caparo case did not involve any disclaimer; indeed if it did, the issues of the case may not have arisen at all. 

O'Donnell J in interpreting the disclaimer stated that the most reasonable interpretation of the disclaimer used was that while JLL asserted every care had been taken in the preparation of the particulars, if they had not done so or if the particulars were incorrect, they did not accept responsibility. He found that if the particulars were of importance to a prospective purchaser, the purchaser should verify them independently or if they didn’t, bear the risk of any inaccuracy unless the agent has clearly assumed the risk. O'Donnell J was satisfied that JLL had not assumed responsibility to Walsh. 

The Supreme Court held that the existence of a disclaimer of liability, if properly worded, meant that there is no assumption of responsibility by the maker of the statement to third parties and therefore, no duty of care should be found to exist.

JLL admitted that the Brochure was incorrect and that they had erred but as there was no duty of care assumed by them, the question as to whether they were negligent did not arise. 

The Supreme Court found that the High Court decision had the effect of blurring the distinction between negligent acts and negligent statements which was found in the English decision of Hedley Byrne v Heller & Partners Limited [1964] A.C. 465 and the succeeding case law.  The Court found that a duty of care for a negligent statement can only arise where the author of the misstatement expressly or implicitly assumed some responsibility. 

Implications for Purchasers

Estate agents, auctioneers and other professionals who regularly use liability disclaimers in respect of their publications will be pleased with this decision which confirms that a correctly worded disclaimer can operate to exclude liability to prospective purchasers.

The High Court decision had conferred some comfort to prospective purchasers in establishing a duty of care owed to them in respect of information provided by third parties, irrespective of the existence of a disclaimer.

The Supreme Court decision effectively reinstates the original position of "caveat emptor" i.e. "let the buyer beware". 

Purchasers cannot simply rely on the information provided in brochures et al, whether verbally, digitally or otherwise (particularly where it bears a disclaimer).   Accordingly, prospective purchasers will be advised to carry out their own due diligence, upon which they can rely, in advance of acquiring real estate.  Otherwise, they should obtain reliance letters from the provider of the information to make it clear that they can rely on same.  Otherwise, one buys at one’s own risk. The wider implications of the judgment are under consideration as it may indeed have reach beyond real estate into other asset classes. 

For further information on this case, or for general advice on property purchases including pre-contract due diligence, contact Michael Walsh, Partner and Head of the ByrneWallace Property Team.