Professional consultants’ obligations to third parties
Wed 17 Sep 2014
The Court of Appeal recently handed down a decision which will be welcomed by consultants and developers alike. Hunt & Ors v Optima (Cambridge) Ltd & Ors overturned the judgment of a lower court concerning the duties owed by professionals when issuing documents to third parties, such as purchasers and lenders.
Facts: Hunt V Optima
Optima (Cambridge) Limited (“Optima”), a developer, constructed two residential blocks in Peterborough. During the construction of the properties, Optima hired a firm of consultants to certify that the flats had been built in line with the building regulations and that they were free from defects. It was agreed that certificates would be issued to purchasers during the conveyancing process.
Certificates were issued to a small minority of purchasers prior to exchange of contracts, with the rest only being provided with draft certificates prior to exchange.
When serious defects were found in the blocks, the purchasers claimed against Optima and the consultants.
The First Instance Judgment In The TCC
The Technology and Construction Court (“TCC”) found that the claimant purchasers were owed two duties. The first was a general duty to carry out inspections with an architect’s skill and care; and the second was to provide accurate certificates.
The TCC found additionally that the certificates had contractual force and therefore served as warranties between the consultants and the claimants.
These findings caused alarm in the professional community, not least because, for the majority of claimants, the certificates in question were produced some time after completion of their purchases. The judgment therefore both expanded the duties owed by consultants in particular (and arguably professionals in general) and implied contractual relationships between parties which had neither engaged in negotiation nor reached any formal agreement.
The Current Position: Judgment By The Court Of Appeal
The Court of Appeal rejected the TCC’s reasoning on two principal grounds:
(i) Negligent misstatement
The leading judgment from Clarke LJ stressed that the timeline of events – in which certificates were provided following completion of the purchases – did not permit a finding of negligent misstatement as it is an established principle that ‘reliance must follow representation’. Indeed the judgment describes as ‘astonishing’ the claim made by the developer’s solicitor that the proper time to issue certificates would be after completion of the sale of units.
Following from (i) above, whilst the consultants clearly owed contractual duties to its client, Optima, no such contractual duty could be implied between the consultants and third parties. Consequently there could be no action against the consultants in tort. This finding was reached on the basis that the basic elements of a contract had not been established between the consultants and the claimants, and the certificate made clear on its face that it was not a promise or guarantee.
The Court of Appeal’s judgment has restored the scope of negligent misstatement to its position prior to the finding in the TCC - namely that an action will only be successful if a claimant can prove that it suffered losses directly as a result of its reliance on a professional’s negligent misstatement. This will come as a relief to the many professionals engaged in the construction industry, as will the court’s reluctance to imply collateral warranties between professionals and third parties.
Nonetheless, it should be noted that the consultants did not seek leave to appeal the awards made against it in favour of those claimants who had received certificates prior to the completion of their purchases. This case is therefore a useful reminder that negligent misstatement remains a live issue for professionals, and claims against them might succeed if the facts demonstrate reliance.
If you have any questions regarding actions in negligent misstatement – or construction disputes more widely - then please do not hesitate to contact the Construction Team at Winckworth Sherwood using the details below.
The full judgment can be found here