Hunt & Others v Optima (Cambridge) Ltd & Others is an interesting and complex decision from the Technology and Construction Court (TCC) involving the development of a block of flats which went wrong from the beginning.
There were multiple defects and the claimant leaseholders successfully sued the developer landlord under sales agreements and a repairing covenant. But liability did not stop there - the property consultants were also found to have been negligent in wrongly issuing certificates that each property, in broad terms, had been properly built. All in all - a catalogue of errors.
The first defendant, Optima, developed a new four-storey block of 26 flats in Peterborough between 2001 and 2004. 13 of the flats were retained by Optima and the rest were sold mostly directly to long leaseholders, including the claimants. Strutt & Parker (S&P), the second defendant, was engaged by Optima to carry out periodic inspections with a view to producing certificates certifying that the work had been constructed to a satisfactory standard and in general compliance with approved drawings and Building Regulations. The third defendant was the architect employed by S&P.
Optima agreed with the leaseholders to whom it sold in 2003 and 2004 that the works would be completed to certain standards and requirements. As the landlord, it agreed to maintain, repair and renew the main structure of the overall building and common services. However, over the years, a number of serious defects or deficiencies had emerged within the flats, in the common parts and in relation to services.
Optima was alleged to have been in breach of:
- Clause 3.1 of the Sale Agreements with four of the claimants to whom it sold, as follows:
"[Optima] shall cause the Premises to be completed in a good and workmanlike manner and with suitable materials pursuant to any Planning Permissions granted in respect of the Building so that the Premises shall be fit for occupation on completion and the Building will comply with all Planning Permissions and Building Regulations as soon as may be reasonably practicable..."
- Clause 4.6.1 of the leases (referred to as the repairing covenant) with all the claimants (eight in total), as follows:
"To maintain repair decorate renew amend clean repoint paint varnish whiten and colour (a) the main structure of the Building...(b) the sewers drains channels watercourses gas and water pipes electrical cables and wires supply lines in under and upon the Building (c) the internal load bearing walls roof and floor joists of the Premises ..."
Damages were sought against Optima in relation to remedial work costs; various miscellaneous and specific costs incurred by individual claimants; and general damages for discomfort and inconvenience. In its defence, Optima argued that the causes of action under clause 3.1 for two of the claimants were barred by limitation. It generally denied that it was in breach of clause 3.1 save for several matters for which it had admitted liability. Further, the first to sixth claimants could not claim for the cost of remedying admitted defects where Optima had confirmed its intention to have those works carried out at its expense.
S&P was alleged to have been in breach of warranty or negligent. The certificates issued by the architect and vicariously by S&P (or in the alternative Strutt & Parker LLP, the fourth defendant) were enforceable warranties and amounted to negligent misstatements which gave rise to a cause of action in tort.
The claimants argued that the architect, on behalf of S&P, owed a duty of care to the claimants to carry out the professional services referred to in the certificates with reasonable skill and care for the subsequent production of the certificates.
Damages for breach of warranty and negligent misstatement were sought on the basis of capital diminution as at the date of acquisition of the relevant flat. However, damages for breach of the general duty of care were the same as those pleaded against Optima.
S&P raised a number of defences. First, two of the claimants' claims were time-barred. Second, the architect did not assume personal liability as he was in the employment of S&P. Additionally, liability was denied in relation to all defects and S&P argued there was no reliance by any of the claimants on the certificates or anything which the architect had or had not done.
S&P denied there was any duty of care. It also denied that there was any warranty because of lack of consideration.
Clause 3.1 and limitation
The main issue was when any cause of action for breach of clause 3.1 finally crystallised. Optima argued that the cause of action crystallised no later than the date when sufficient works had been completed to enable entry and occupation of the flat in question. In contrast, the claimants argued that the cause of action accrued when the building as a whole, as opposed to the individual flat, was completed.
The judge (Akenhead J) reviewed relevant case law. He confirmed that a cause of action broadly arises where the relevant facts or "factual situation" have arisen such that they first could be sued upon. It was also necessary to analyse the contract to ascertain whether "there are actually or potentially two causes of action which could arise in connection with one contractual term or in relation to the same facts but at different times." The judge concluded that it was the latter; for example, a flat sold and handed over to a purchaser may have a cause of action against Optima for inadequate sound insulation. When the building as a whole is completed, the flat owner may have a further cause of action against Optima because the sound insulation remains inadequate and in breach of the Building Regulations.
The repairing covenant
The scope of the "repairing" covenant was disputed. It was necessary to construe Optima's obligation in the appropriate context. The first point to be made was that Optima was the landlord and in effect the developer of the building and the demised premises in particular.
The judge concluded that the repairing covenant was a wide obligation which imposed on Optima the obligation to maintain, repair, renew or even vary those parts of the building covered by clause 4.6.1. The judge said that there was "a real commercial and practical advantage for both the Landlord and Tenant for there being a relatively broad 'repairing' covenant."
It was clear that on the face of the certificates themselves and S&P's terms of engagement, that the architect's certificates would be relied on by the first and subsequent purchasers.
S&P LLP and personal liability
As a preliminary point, the judge found that S&P LLP was never materially involved in any of the events in the legal proceedings, at least insofar as they could give rise to any cause of action against it. Additionally, the judge found that the architect did not issue the certificates in a purely personal capacity and therefore he could not be personally liable.
S&P liable for negligent misstatement
The judge said it was clear that there was an actionable duty of care owed by S&P through the architect, to the claimants, based on the well-known House of Lords (now the Supreme Court) decision in Hedley Byrne & Co Ltd v Heller & Co Ltd (1964). This cause of action is based on negligent misstatement where there is a "special relationship" between the maker of the statement and the recipient who places trust in the maker or who has relied on the maker's skill and judgment. There must also be an "assumption of liability" by the maker but it is not necessary for there to be a contract in place.
The judge concluded that "the duty of care owed by S&P to the Claimants stemmed from what might properly be called a special relationship and one which is at least akin to contract". Despite S&P being contractually engaged by Optima, S&P was "engaged primarily if not solely to do what was reasonably necessary to put itself in a position in which it could issue Architect's certificates to or for the benefit of first or subsequent purchasers and for them and their lenders to rely upon them." Further, the certificates were written in a way which was akin to a contract. Importantly, the duty of care extended not only to the making of the statement but also to the performance of the services which were necessary to enable S&P, through the architect, to issue the certificates.
Certificates were contractual warranties
The certificates were also enforceable warranties from S&P to the first and sixth claimants. The judge found that those claimants had relied on the certificates. Further, the certificates on their face accepted that they were being relied on. It was irrelevant that certain claimants had only received their certificates after sale and completion since they were all told prior to completion that they would be receiving an architect's certificate.
The individual defects - specific performance and damages
It was accepted by all parties that the cost of reinstatement should form the basis of damages. According to case law, those damages should either flow naturally from the breach of contract, or be within the reasonable contemplation of the parties. Additionally, the claimants had to demonstrate that it was reasonable to recover damages of the type and extent claimed.
The claimants recognised the difficulty in the court ordering specific performance against Optima to rectify the defects. This difficulty was caused by the fact that Optima no longer had any direct say in the management of the building. FBA was the receiver and manager appointed under the requisite legislation to perform this role and there was no cause of action as between the claimants and FBA.
Despite this, Optima argued that specific performance should be ordered to require it to procure the carrying out of the remedial works, albeit through FBA. The judge declined an order for specific performance on various grounds including the fact that Optima had declined, in some cases over many years, to rectify existing problems. Further, "specific performance would not and should not enable Optima to be involved in the procurement and remedial works process other than paying for the remedial works and, if that is to be its function, there is little point in ordering specific performance."
The judge decided against making a monetary award to each of the claimants for the common parts type work. He recommended that a trust account, possibly with the claimants' solicitors, with the damages awardable against Optima, be used to pay for the requisite remedial works to be facilitated by FBA and Optima.
Damages against S&P
The appropriate measure of damage was the capital diminution as at the date of purchase. In relation to defects to the common parts, the most sensible solution was to attribute generally one 26th to each claimant representing his or her share of the overall cost of this remedial work (this proportion being the same as each long leaseholder's share of or contribution to the overall service charge).
General damages for inconvenience and distress
As against S&P, the judge decided general damages should not be awarded. The breaches of duty by S&P had not, on the evidence, caused or would not cause, inconvenience or distress. S&P could not be criticised for failing to remedy the problems.
However, Optima's position was different. As a result of its breaches of clause 3.1, (1) the claimants suffered for a lengthy period (up to 9 to 10 years) having to live in uncomfortable conditions with leaks, noise and smells from sewerage, for example, and (2) there would be serious inconvenience when the remedial works were carried out.
The judge awarded "fair and modest allowances" for general damages, totalling between £213 and £1,100 for each of the relevant claimants. In addition, there were claims for the costs and losses of and occasioned by the claimants moving out during the remedial works.
The judge criticised the architect for being too dependant on assuming others were "in effect doing his job for him". He relied on what Optima 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. Also he did not appear to have "differentiated between what S&P had quoted to do for Optima and what he was certifying to potential purchasers."
This decision acts a warning to consultants to fully understand their contractual obligations and the scope of their role, in particular their independent certification function. In this latter respect, the consultant may be liable in negligence to parties with which it has no contract but where it owes a duty of care. Ignoring these principles can prove costly.
The judge's consideration of the limitation issue is also useful in practice.