The Court of Appeal's interesting ruling in Hunt v Optima (Cambridge) Ltd  EWCA Civ 714 overturns a first instance decision that found that architects' certificates provided after the purchase of property gave rise to an action in negligent misstatement. As well as being a good reminder of the key principles of such claims, the successful appeal will be welcomed as a recognition of the limits of the duties of professional advisors.
The case concerned eight claimants who had purchased flats on long leases. After completion, it became clear that there were serious defects with the flats. The claimants successfully sued the developer, Optima (Cambridge) Limited, and Strutt & Parker, a firm of architects, for negligent misstatement. Optima engaged S&P to inspect and certify the flats for the benefit of the purchasers and their lenders. Crucially, the certificates were not actually signed off until after exchange of contracts and, in some cases, even later.
The judge at first instance held that the fact that the certificates were received by the claimants after exchange and completion was no obstacle to recovery by them of damages from S&P. However, as it was put in the Court of Appeal, this 'takes inadequate account of certain key principles'. A claimant must show that he relied on the statement and suffered loss on account of that reliance. On the facts, it was held that the claimants could not have relied on the certificates when they committed themselves to the agreements to purchase the flats, as the certificates were not then in existence.
It was also argued by the claimants (and accepted at first instance) that they were owed two freestanding tortious duties of care by S&P: one in carrying out the inspection of the flats and another in compiling the certificates. The effect of this would have been to place S&P under a duty of care during the assessment stage but before it had made any representations. On appeal, Clarke LJ emphatically rejected the argument and explained that this "would involve imposing on [S&P] a duty to inspect arising out of statements which, at the time when the duty arose, they had not made". In other words, there was no separate duty owed to the claimants for negligent inspection.
A further issue which has received little commentary concerns the events which led up to the purchasers entering into a contract before receiving the certificates. S&P wrote to Irena Spence, the solicitors for Optima, confirming that they were in a position to issue final certificates subject to receipt of the purchasers' names and details. Irena Spence then wrote to one of the purchasers' solicitors explaining that although the architects were in a position to issue a final certificate there was little point in them doing so until contracts had been exchanged. Clarke LJ described this as an 'astonishing' comment as it failed to appreciate the problem of a purchaser agreeing to buy a flat on reliance on a certificate that would not actually be provided until after exchange of contracts.
Hunt is a good reminder of the importance of reliance in a negligent misstatement claim. For lenders or others relying on certificates of this kind, there is an obvious point that the certificate needs to be provided before the agreement is signed. For professional firms, there is the usual message that engagement terms should make clear (where possible) that the firm's duty is limited to the provision of the report in question; not the work leading up to it.