Last edited 23 Feb 2015

Hunt v Optima (Court of Appeal)

Hunt v Optima & Others [2014] EWCA Civ 714

Readers may be familiar with the first instance decision of Mr Justice Akenhead in the Technology and Construction Court (TCC) last year where he found the defendant developers, Optima, liable for breach of contract to the claimant purchasers for various defects in their flats located in Peterborough. The judge found the second defendant architects (Strutt & Parker (‘S&P’)) owed the claimants a duty of care for negligent misstatements contained in certificates they issued and decided they also amounted to collateral warranties. See Hunt and others v Optima (Cambridge) Limited and Strutt & Parker for more information.

This new case arises from an appeal by the defendants against the first instance decision of Mr Justice Akenhead that he erred in his findings that S&P were liable to the claimants for negligent misstatement, in his findings of a duty of care arising from their inspections and that the architect’s certificates amounted to contractual warranties.

The Court of Appeal decided that:

No liability for negligent misstatement was established by 6 of the 8 claimants as the certificates containing the (negligent) statements were despatched to the claimants after they completed the purchase of their flats and therefore could not be relied upon;
There was no separate duty of care in tort to the claimants for negligent inspection by S&P.
S&P’s certificates did not amount to contractual warranties as they did not contain the essential elements of a contract, contrary to the findings of the first instance judge. The court referred to the Council of Mortgage Lenders handbook which stated that if collateral warranties were required from any professional adviser, it would be stated specifically in the mortgage instruction.

The court stated that Mr Egford (the architect acting on behalf of S&P) could not have assumed a responsibility to the claimants as to the accuracy of statements made in the draft certificates which were not yet signed or issued and could have been amended or withdrawn. There was therefore no assumption of responsibility by the defendant or reliance on the unsigned draft certificates.

The finding that final certificates were issued after completion of the majority of the flats was key in the Court’s judgement that reliance was absent. In order to succeed in a claim for negligent misstatement a claimant must demonstrate reliance on the negligent statement and that it had suffered a loss as a result of that reliance. The claimants in this case could not have relied on S&P’s certificates because they did not exist at the date of purchase. LJ Clarke said: “...reliance must follow representation and cannot be retrospective. If the representation is the signed Certificate it cannot be relied on before it comes into existence...”.

The court also found, looking at the facts as a whole, that the certificates did not amount to contractual warranties. The certificates were representation as to the matters contained within them; they were not promises, warranties or guarantees.

Whilst S&P owed Optima a contractual duty to undertake inspections of the properties in order to produce certificates it did not similarly owe such a duty in tort to third parties. The only cause of action open to the claimants was in negligent misstatement which failed.

The judgment will come as welcome relief to architects and others responsible for producing reports that they were not construed by the Appeal Court as constituting contractual warranties and opening a potential cause of action against professionals for contractual claims by third parties. It is also clear that in order to succeed in a claim for negligent misstatement there must be evidence of reliance.

However, the judgment is, of course, fact-specific so could mean that certificates in different terms might risk being construed as contractual warranties and so appropriate care must be exercised in the drafting.

This article was created by construction lawyer --Najma Dunnett as part of an ongoing series of legal articles written for Designing Buildings Wiki.

Follow Najma on Twitter to keep up to date with the latest changes in construction law @NDunnett_Cons.