Construction PI: Architects - duty of care to third party purchasers
The Court of Appeal has allowed an appeal against a finding that a firm of architects was in breach of its duty of care to purchasers of individual properties. This decision is likely to be welcomed by architects, and indeed other professionals (such as accountants, surveyors, valuers) who issue statements or reports. The successful appeal reverses a first instance decision which arguably expanded the scope of professionals’ liability to third parties, particularly in respect of negligent misstatement.
The dispute concerned two blocks of flats in Peterborough. Remedial works were necessary in relation to the roof, guttering, deflecting floors, acoustic problems, riser ducts, water leaks and plumbing. Eight purchasers of the flats brought contractual claims against the developer (“Optima”). The claimants also brought contractual and tortious claims against the architect (Strutt & Parker (“S&P”)) in relation to certificates confirming the satisfactory construction of the flats.
The Technology and Construction Court (“TCC”) held that the majority of the claimants were entitled to recover damages for breach of contract from Optima, now in administration. The TCC also held that the claimants could recover damages from S&P, who was in breach of its contractual and tortious duty of care, for the following reasons:
- The certificates contained enforceable contractual warranties.
- The certificates amounted to negligent misstatements. Notably, it was no obstacle to the recovery of damages that six of the eight claimants had received the certificates after they had purchased the property.
- S&P owed a duty of care to carry out the professional services referred to in the certificates with reasonable skill and care for the purpose of the subsequent production of the certificates.
The successful appeal
The Court of Appeal’s judgment is significant in three respects:Negligent misstatement – reliance must follow representation
The Court of Appeal dismissed the finding that the certificates were negligent misstatements. In order to recover in the tort of negligent misstatement a claimant must show reliance on the statement in question. The Court of Appeal held the claimants could not have relied on the statements in the certificates in committing themselves to buy the properties because the statements were not then in existence. The fact that the claimants might have relied upon the proposition that there would be a certificate (based on the draft form of wording in the CML Handbook) was ambiguous. S&P did not assume responsibility to purchasers as to the accuracy of a draft certificate issued before the sale, because it was capable of being amended, or possibly not issued at all.The certificates did not amount to contractual warranties
The Court of Appeal disagreed with the TCC’s finding that the certificates were written in a way which was akin to a contract, which would have provided the claimants with a claim based in contract, rather than in tort. The certificates were not described as a promise, warranty or guarantee.No separate duty was owed to the claimants in respect of the inspections which led to the representations in the certificates:
The Court of Appeal found that S&P owed a contractual duty to Optima in respect of its inspections but that did not necessarily mean S&P owed future certificate holders a similar duty in tort. To impose an additional tortious duty in relation to S&P’s inspections went too far in what was essentially an assumption of responsibility to take care in making a statement upon which persons will place reliance.
The Court of Appeal’s decision provides a useful reminder that a claimant must prove reliance on the actual statement in question as a necessary component to liability for negligent misstatement. Whilst this decision is positive news for professionals, and their insurers, it is important to note the following:
- S&P did not seek leave to appeal the finding against it concerning two claimants to whom a certificate had been provided before the sale agreement was signed.
- The Court of Appeal’s judgment gave an indication that the claims might have succeeded against S&P had they been pleaded in a different way (e.g. that S&P assumed a responsibility to the purchasers for the accuracy of the statements in the draft certificate that had been issued at the date of the sale agreement).
Architects, and other professionals issuing certificates, should remain alive to the risk of a successful claim for negligent misstatement if reliance can be established.
This article first appeared in Law-Now, CMS Cameron McKenna's free online information service, and has been reproduced with their permission. For more information about Law-Now, click here.