Hunt & Others v Optima (Cambridge) Ltd & Others

[2013] EWHC 681 (TCC)

In this case the (successful) claimant leaseholders made a number of claims against both the developer landlord (under the terms of the sales agreement and a repairing covenant) and also against the architects (“S&P”) who had been retained by Optima (and not the Claimants) to carry out periodic inspections with a view to producing certificates for the benefit of potential purchasers which said that each individual flat had been constructed to a satisfactory standard, and in general compliance with the drawings approved under the building regulations.

The certificates issued by S&P noted that S&P was aware that it was being relied upon by the first purchaser of each property and confirmed that S&P would remain liable for a period of six years from the date of this certificate. Such liability was expressed to be to the first purchasers and their lenders and upon each sale of the property during the six years to subsequent purchasers and their lenders. One question arose as to what cause of action existed. There was no doubt that the certificates were issued by S&P knowing or believing that they would be relied upon by purchasers and that they could be relied upon by subsequent purchasers. Therefore following the traditional Hedley Byrne v Heller (i.e. negligent misstatement) line of cases, Mr Justice Akenhead considered that S&P owed an actionable duty of care to the Claimants. This duty extended not only to the making of the statement but also to the performance of the services necessary to enable S&P to issue the certificates. This led to two duties: the duty to exercise reasonable care first in the performance of the services leading up to the issue of the certificate, and secondly in the issuing of the certificate itself.

The duty of care owed by S&P to the Claimants stemmed from what the Judge said “might properly be called a special relationship and one which is at least akin to contract”. Whilst S&P had a contract with Optima, it was engaged primarily, if not solely, to do what was reasonably necessary to put itself in a position in which it could issue the certificates to, or for,the benefit of, first or subsequent purchasers and for them and their lenders to rely upon them.

Further, the Judge said that on its face the certificate amounted to a warranty. It was not a guarantee that the property had been built perfectly. It was explicit that it was a warranty based on inspection by an architect that the property was satisfactory, it being necessarily implicit that the inspections and certifying are done with reasonable care. It should be noted here that the Judge felt that the architect had been too dependent on assuming that others were in effect doing his job for him. Time and again, he said that he relied on what the developer had told him as to whether defective work had been put right, or on the fact that the local council building inspectors “must” have vetted various items of work. In some of the cases here, this amounted to an enforceable contractual warranty.

The Judge dealt with the argument that there had been no consideration (the Claimants had not made any direct payment to S&P and S&P’s only contract was with the developer) in this way. The purchasers, in paying for their flats, knew that they were entitled to receive the certificates when they did so. Therefore the receipt of the certificates was paid for by the purchasers in circumstances where S&P must have known that it was to provide the certificates for the benefit of the purchasers at or after the time of purchase. There was consideration and it moved not to S&P but to the developer, as everyone knew that it would. Where a Claimant had not been told prior to purchase that a certificate had been issued and did not actually physically receive a copy prior to purchase, this was not sufficient to provide consideration such as to create a contractually enforceable warranty. There was, however, a tortious duty owed by S&P which was created and then confirmed by the issue of the certificate. In terms of reliance (leaving aside that the Claimants knew that they were entitled to receive the certificates and so had the assurance that the flats had been properly inspected by an experienced architect), many of the Claimants used the certificate (or the fact that there would be one) in order to obtain mortgage finance. The Judge concluded that:

“a duty of care was owed by S&P to each of the Claimants both in relation to the issuing of the Certificates as well as the execution of the inspection services referred to on the Certificates … One needs to bear in mind that none of the Claimants were made aware of the contractual terms as between Optima and S&P and the Certificates are not limited by any number of inspections because all that the Certificates said was that appropriate inspections were carried out. The scope is simply what the Certificates said.”

In terms of limitation, the warranties ran for six years from the date of their issue. The claims based on negligent misstatement ran from the date of the purchase of the property in question or the date of the certificate, whichever was the later. This was because the damage for the purposes of the tort related to the price actually paid since the purchasers were buying a property which, because of the defects, was actually worth less than the price they were paying for it.

In terms of damages against S&P, these were assessed on the basis of the capital diminution as at the date of purchase, i.e. the value of the property free from defects. The diminution in value of the common parts was assessed on a proportional basis, based on the number of properties. The Judge did not award general damages against S&P because the breaches of duty had not caused inconvenience or distress and certainly it was the developer and not S&P who could be criticised for not remedying the problems.

This case was overturned on appeal. See Dispatch Issue 170.

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