Reliance must follow representation and cannot be retrospective to the transaction it induces the buyer to enter into.
Where a seller indicates that an Architect’s Certificate is in existence (when it is not) or that it will be forthcoming after completion of the sale and, in either event, the Certificate does come forward but only after exchange of contracts and completion the buyer may have problems relying on it as the following case indicates.
In Hunt & Ors v Optima (Cambridge) Ltd & Ors  Optima (Cambridge) Ltd (“Optima”) built 2 blocks of flats at Jubilee Mansions, Peterborough. Strutt & Parker (“S & P”) were retained by them to carry out inspections in the course of development and produce “Architects Certificates” in respect of the flats for the benefit of the purchasers and their lenders.
Before exchange of contracts the purchasers were told that they would receive Certificates on completion.
S & P carried out some ten inspections of the works, producing to Optima Certificates as to the relevant stages of construction of the flats.
S & P also provided Certificates to the purchasers attesting to the satisfactory construction of the flats.
The building works were carried out badly and the inspections were negligent.
Eight of the purchasers sued Optima and S & P.
In the case of two of the claimants the Certificate was executed before the date of the sale agreement between them and Optima. S & P accepted liability to them.
In respect of six other claimants (“the claimants”), the Certificate was not provided until after, and perhaps long after, the exchange of contracts and completion of the relevant flat lease.
The procedure for the claimants other than claimants 7 and 8 – Mr & Mrs Peace – was for S & P to send the Certificates (in draft or as completed) to Optima’s solicitors (“Irena Spence”) – who then submitted them to the claimants’ solicitors’ firms.
Was the fact that the Certificates had been received by the claimants after contract and completion an obstacle to the recovery by them of damages from S & P?
Exceptionally Mr and Mrs Peace, were not the original purchasers from Optima. The original purchaser of their flat – flat 17 – was Chantal Smith whose lease was dated 2003. She sold the lease to them in 2006.
The negligent statements relied on were the statements contained in the signed Certificate eventually provided to the relevant claimant. But the claimants could not have relied on those statements in committing themselves to their purchase contracts because those statements did not then exist.
At most they could be said to have relied on an understanding either (i) that there was a Certificate already in place; or (ii) that they would receive a Certificate on or after completion.
An indication of the form that a statement would take when issued fell far short of the representation the claimants needed to demonstrate i.e that a Certificate could be relied on before it was issued.
In fact only claimants 5 and 6 had any form of indication that S & P was in a position to sign a Certificate, as opposed to a mere indication of what would be the form of any Certificate once signed.
Those considerations applied even more forcefully to Mr and Mrs Peace, the 7th and 8th claimants. Before they bought they were not told that an Architect’s Certificate had been or would be issued nor were they provided with any draft.
They received a Certificate nearly 3 years after they completed their purchase. This was the first time they knew anything of S & P and the work they had carried out. All that they got pre-contract and completion was the seller’s inaccurate “yes” answer to the question whether there were any guarantees or insurance policies of three specified types.
For the claimants, other than Mr and Mrs Peace, one straw they could clutch at would be afforded by construing the Certificate, as a form of warranty, which would require an intention to create contractual relations.
Those of the claimants’ solicitors who told their clients that the Certificate was like a guarantee were adopting this line of reasoning.
However, the Certificate was not any form of warranty. The Certificate was described as such; and not as a promise, warranty or guarantee. It contained no reference to any consideration. Although it was to be relied upon by subsequent purchasers, and those lending to them, there was no reference to any possible assignment of the “Architect’s” obligations.
The document certified that various things had happened and gave various conclusions as to the state of completion of the property and the standard of its construction.
Clause 5 said “I am aware that this Certificate is being relied upon…”. However this was no more than was to be expected of a document which the maker intended to be relied on so as to give rise to a potential liability in negligent misstatement. Those words would have been unnecessary if there was to be contractual liability under a warranty anyway. So also was the confirmation in clause 7 that the certifier had appropriate experience.
The Certificate was not written akin to a contract or “on its face” a warranty.
It ought to be considered how the Certificate would be viewed by a reasonable person with the level of knowledge he could be expected to have. As people buy land with legal assistance, how would the document appear to someone who knew how a warranty contract was distinctly different?
So the judge lower down was wrong to find that the claimants were entitled to succeed based on a negligent misstatement or collateral warranty. So the Court of Appeal allowed the appeal and dismissed the claimants’ claims.
This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.