Private AI – claims against approved inspectors

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The extent to which property owners of a defective building have a valid claim against professionals with involvement in the development is a subject that has recently seen an upsurge in interest and litigation. In the past months two TCC judgments have been published that consider the particular role and potential liabilities of approved inspectors (AIs): Zagora Management Ltd and others v Zurich Insurance plc and others and Lessees and Management Company of Herons Court v Heronslea Ltd and others.

To the disappointment of property owners, and perhaps the relief of insurers, these cases demonstrate the difficulties claimants face in succeeding against AIs. 

Background

The AI regime was introduced by sections 47–50 of the Building Act 1984 (BA 1984). Prior to this, it was only local authorities who could provide inspectors for the purposes of enforcement and certification of compliance with the Building Regulations. The BA 1984 essentially permitted the privatisation of these inspectors. These private inspectors are approved in the sense that they have to apply to be placed on a register held by the Construction Industry Council.

At the time the BA 1984 was passed, Anns v Merton was good law and any inspector potentially owed a duty of care in respect of the economic loss caused by any defect in a building not spotted in a negligent Building Regulations inspection and certification. However, in 1990, the House of Lords in Murphy v Brentwood overturned Anns v Merton and decided that local authority building control inspectors did not owe any such duty. In Tesco v Wards Construction this was applied to find that local authority inspectors did not owe a common law duty of care to avoid causing physical damage to property either. The question of whether this duty applied to private AIs was doubted, though left open.

After these developments, there seem to have been no reported cases involving civil claims against AIs for almost 25 years. However, the recent proliferation of issues relating to non-compliance with the Building Regulations, in particular fire-stopping problems, has clearly led parties to think again as to whether there may be a valid claim against an AI for wrongly issuing a Building Regulations certificate.

Zagora

The Zagora case involved claims by the freeholder and leaseholders of two blocks of flats in Hulme, Manchester, against the AI (Zurich Building Control Services). The flats were found to have serious defects, including major fire-safety related defects in respect of which the fire service had issued a prohibition notice.

As the judge made clear, the claim against the AI was put in the tort of deceit “since under the existing law negligence alone will not suffice.” It was claimed that the AI knew that the statements it made in the Building Regulations final certificates were not true, or knew that there were no reasonable grounds for believing the truth of the statements, or was reckless as to their truth. On causation, the claimants argued that they would not have acquired their property interests had they known the true position.

The judge found (in section 11 of his long judgment) that the AI had made misrepresentations in the Building Regulations final certificates that he knew to be false. He had known of serious concerns with the development and compliance with the regulations, particularly as regards fire safety, and yet had signed off the certificates “to get the job off his desk”.

However, this was not enough for the claims to succeed. The judge held that the claimants’ cases failed for lack of reliance. The claim by the freeholder of the flats failed because it was a subsequent purchaser and there was no evidence that the AI had intended that a subsequent purchaser would rely on the Building Regulations final certificate. The leaseholders’ claims failed because on the facts there was no evidence that they (or their conveyancing solicitors) had been provided with or asked for the Building Regulations final certificates or relied on them, and as such the false certificates did not induce the leaseholders to purchase the flats.

Herons Court

In Herons Court the claimants were the lessees and management company of a block of twelve flats in Radlett, Herfordshire. The fourth defendant was the NHBC Building Control Services, which carried out AI services. The alleged defects on the flats included inadequate fire resistance and water resistance.

In an attempt to get around the difficulties with a negligence claim caused by Murphy or the need to prove deceit, the claimants in this case framed their allegations of breach against the AI under the Defective Premises Act 1972 (DPA 1972). Section 1(1) of the DPA 1972 requires those who take on work “for or in connection with the provision of a dwelling” to carry out that work in a workmanlike manner, or, as the case may be, in a professional manner with proper materials so that the dwelling is fit for habitation.

The current edition of Keating on Construction Contracts at paragraph 16-005, states that “it is not clear whether a local authority [or AI] performing its duties under the building regulations can come within [section 1(1) of the DPA 1972].” Following Herons Court, it is now clear that it does not, as the AI successfully applied to strike out the claim.

Waksman J carefully analysed the judgments of the House of Lords in Murphy and concluded that they were inconsistent with a view that the DPA 1972 applied to Building Regulations inspection services. This was also reflected in Law Commission Report No.40, which led to the enactment of the DPA 1972, and which considered that section 1 would apply to builders, sub-contractors, and professionals such as architects, surveyors and engineers who contribute in a meaningful way to the design or construction of the building. Instead, as regards an AI, the judge found that “what it is contributing to is the aim of ensuring that the building is lawful”. Further, section 38 of the BA 1984 (which is not in force) provides for a remedy for breach of duty imposed by the Building Regulations. Waksman J held that this militated against the suggestion that AIs were subject to the earlier DPA 1972.

Discussion

The appearance of these two AI cases in close succession, following a long period in which the liability of an AI has not been argued before the courts, reflects the increasing trend of buildings being found to be non-compliant with the Building Regulations, and claimant owners understandably seeking a remedy against a viable (insurance-backed) defendant.

However, the prospects of a claim against an AI have not improved since the 1990s, and these two cases reiterate the formidable difficulties for claimants in succeeding against AIs in tort.

Some have queried why, when private AIs are professionals, are required to be insurance-backed, and issue certificates that (in some cases at least) will be relied on by purchasers, they should be treated differently from other professionals involved in construction projects. The courts’ current answer seems to lie in the nature and historical development of the role:

  • The role of an AI or local authority pursuant to the BA 1984 and Building Regulations is seen as relating to regulatory certification, primarily aimed at health, safety and welfare of persons (Tesco v Wards), as opposed to involvement in the “provision” or construction of a building.
  • As Waksman J points out in Herons Court, there is a concern that it makes little sense for a claim against a local authority carrying out the Building Regulations inspection function to be barred (as found in Murphy), but to allow one when a private AI is carrying out precisely the same functions.

Either way, the courts have effectively shut the door on both negligence claims for economic loss and claims under the DPA 1972 against an AI. Unless and until section 38 of the Building Act 1984 is brought into force (which would give parties a direct cause of action for breach of the Building Regulations), or AIs are willing to give collateral warranties to purchasers, it seems parties wishing to claim against an AI will be left only with the difficult route of a claim in deceit/fraudulent misrepresentation.

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