Liability of approved inspectors
Approved Inspectors are private individuals or organisations that are appointed on construction projects by the client to verify that the construction work complies with Building Regulations. They provide advice to the client throughout the project and their role usually includes, amongst other things, ensuring that proposals and construction works comply with Building Regulations as the project progresses and issuing a final certificate to the client at the end of the project certifying Building Regulations compliance. There have been two recent cases which discuss the liability of Approved Inspectors. James Mullen explains further.
The scheme of the private Approved Inspector was introduced by the Building Act 1984 (“BA 1984”). Prior to the BA 1984, the role of ensuring that a project complied with Building Regulations was carried out by Local Authorities’ building control departments. After the BA 1984, the role of ensuring compliance with Building Regulations could be carried out by either Local Authority inspectors or private Approved Inspectors depending on what the client decided.
To be ‘Approved Inspectors’, the private inspectors must apply to be placed on a register held by the Construction Industry Council.
Whether a client decides to appoint Approved Inspectors or use the Local Authority to verify compliance with Building Regulations will often depend on the client themselves and the project. However, unlike the building control department of a Local Authority, Approved Inspectors are appointed by the client contractually to provide their services and are required to maintain professional indemnity insurance to cover the economic loss arising out of negligence. This gives the client some protection should the Approved Inspector fail to carry out their role properly during the project and the client suffers loss as a result. Approved Inspectors are often appointed by the client for this reason instead of the Local Authority.
Further, many newbuild residential developments are now sold to their new owners with a 10-year defects insurance policy from insurers such as NHBC. Where such cover is being provided, it is not uncommon for a company related to the insurer to have been appointed as the Approved Inspector for the project. For example, in the Herons Court case discussed below, the new flats had the benefit of NHBC’s Buildmark insurance cover against defects. On that project, the Approved Inspector was NHBC Building Control Services Ltd (“BCS”). I have recently been involved in a dispute concerning a block of flats constructed in 2004 where the position was the same: the flats had the benefit of NHBC’s Buildmark cover and the Approved Inspector for the project had been BCS. In the Zagora case discussed below, Zurich Insurance PLC had issued its standard 10-year new homes structural defects policies to the long leaseholders of the new flats. The Approved Inspector was Zurich Building Control Services Ltd (“ZBC”). The reason for this may be not only commercial (the Approved Inspector is paid to carry out its role on a project after all) but also in circumstances where the insurer is providing insurance cover upon completion against defects, they may want the comfort of knowing that its related company has certified that the works have been carried out in compliance with Building Regulations (and so are less likely to contain defects).
The law
At the time the BA 1984 was introduced, the case of Anns v Merton1 had established the principle that Local Authority inspectors did potentially owe a duty of care to householders for economic loss caused by negligence when carrying out their building control role.
However, the decision in Anns was overturned in 1990 by the House of Lords’ decision in Murphy v Brentwood2 which established that Local Authority building control inspectors did not owe a duty of care in respect of the economic loss caused by negligence (i.e. a failure to identify non-compliance with Building Regulations).
Whilst the decision in Murphy v Brentwood concerned the liability of Local Authority building control inspectors, the general view amongst legal practitioners appears to have been that the principle derived from Murphy was likely to also apply to private Approved Inspectors because there were very few cases post-1990 concerning the liability of Approved Inspectors for damage caused by a failure to carry out their role properly. In 2018–2019, however, there were two cases that considered this issue.
Lessees and Management Limited Company of Herons Court v Heronslea and others
Technology and Construction Court (October 2018)3
Herons Court is a block of flats in Radlett, Hertfordshire. The claimants were the lessees and the management company of the block. There were four defendants, one of whom was BCS who had been the Approved Inspector and who had certified that the relevant Building Regulations had been complied with. The claimants alleged that the flats were defective and did not comply with Building Regulations.
Perhaps recognising the difficulties with bringing a claim in the tort of negligence against Approved Inspectors following the decision in Murphy v Brentwood, the claimants’ claim against BCS was brought under section 1(1) of the Defective Premises Act 1972 (“DPA 1972”). Section 1(1) of the DPA 1972 states:
“A person taking on work for or in connection with the provision of a dwelling (whether the dwelling is provided by the erection or by the conversion or enlargement of a building) owes a duty –
(a) if the dwelling is provided to the order of any person, to that person; and
(b) without prejudice to paragraph (a) above, to every person who acquires an interest (whether legal or equitable) in the dwelling;to see that the work which he takes on is done in a workmanlike or, as the case may be, professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed.”
The claimants argued that BCS had a duty under section 1(1) of the DPA 1972 as it had taken on work “for or in connection with the provision of a dwelling” and so it was required to ensure that the work it undertook was carried out in a workmanlike or professional manner with proper materials so that the dwelling would be fit for habitation when completed.
The court rejected the claimants’ claim and held that BSC, as an Approved Inspector, did not owe a duty under section 1(1) of the DPA 1972. The court said that section 1(1) was targeted at architects and designers and other professionals who were contributing to the design and construction of the building. By contrast, an Approved Inspector’s essential function was to certify whether that design or construction is lawful in a building sense.
The court also referred to the decision in Murphy v Brentwood which expressly rejected the proposition that the DPA 1972 imposed a liability on Local Authority building control. The court regarded Approved Inspectors as carrying out the same regulatory function as Local Authority building inspectors, notwithstanding that they work for profit, and so Approved Inspectors should be considered as the same as Local Authority inspectors when it came to the duty under section 1(1).
Court of Appeal (August 2019)4
The lessees and the management company appealed the TCC’s decision and the matter went before the Court of Appeal (“CA”).
The CA unanimously rejected the claimants’ claim and upheld the TCC’s decision. The CA held that Approved Inspectors have “no statutory power to influence the design or construction of a building in any way, save to stipulate that it must comply with the law. In certifying, or refusing to certify, plans and works, the AI is not engaged in the positive role of the provision or creation of the relevant building, but performs the essentially negative regulatory role of checking for compliance against prescribed criteria.”
As to Murphy, the CA said “The result, the reasoning and a number of the speeches in Murphy mean that it is highly persuasive authority that a local authority does not owe a duty under s.1 DPA 1972 in the exercise of its building control functions.” Noting the similarities between the statutory regimes governing both the Local Authorities and Approved Inspectors, the CA accepted that it was “difficult to see how these activities amount to ‘work for or in connection with the provision of a dwelling’ when carried out by an AI, in circumstances where they do not when carried out by a local authority”.
Zagora Management Ltd and Others v Zurich Insurance PLC and Others5
This case was heard in between the two Herons Court cases and concerned a development of two blocks of flats in Hulme, Manchester, which were said to be defective. The claimants were (1) the buildings’ freehold owner (who was not the original freeholder but had acquired the freehold in 2013); and (2) the individual long leaseholders of the flats. One of the defendants was ZBC who had been the Approved Inspector for the project and had issued the certificates under Building Regulations.
Here the basis for the claimants’ claim was not the DPA 1972 but deceit/fraudulent misrepresentation as the claimants alleged that the Approved Inspector knew 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 statements or was reckless as to their truth. The claimants argued that they would not have acquired their property interests had they known the true position.
The court agreed that the Approved Inspector had made misrepresentations in the Building Regulations final certificates that he knew to be false yet he had signed off the certificates “to get the job off his desk”. However, for their claim in deceit/fraudulent misrepresentation to succeed, the claimants had to prove a reliance on the final certificates.
The court decided that it was impossible to conclude that the Approved Inspector intended for the subsequent freeholder to rely on the certificates two to three years after they had been issued. As to the individual long leaseholders, the Approved Inspector accepted that it did anticipate that the leaseholders would rely on the certificates but there was no evidence that the leaseholders or their solicitors were provided with the certificates before either exchange or completion. Therefore, whilst the claimants were able to prove deceit on the part of the Approved Inspector, their claims failed on the basis that they were unable to demonstrate reliance.
Comment
There was already little scope for negligence claims for economic loss against Approved Inspectors following Murphy v Brentwood. The cases of Herons Court and Zagora have further reduced the scope of potential claims against Approved Inspectors, with the former confirming that a claim against Approved Inspectors under the DPA 1972 will not succeed, and the latter confirming that a claim for fraudulent misrepresentation may succeed but only if the claimants can prove both deceit by the Approved Inspector and reliance, the second limb being a high hurdle to pass.
As noted above, many flats in newbuild developments are now sold with the benefit of 10-year defects insurance cover from providers such as NHBC. Therefore, subject to the terms of the cover, flat owners may still have an ability to claim for defects against the insurer under their policies. However, the circumstances in which property owners will be able to claim against Approved Inspectors for their failure to carry out their Building Regulations role properly are extremely limited. Good news for Approved Inspectors and their PI insurers. A client who appointed an Approved Inspector would have a contractual route of recourse but other stakeholders such as a building’s freeholder owner (if different from the client) or the flat owners themselves would not have a contractual right to claim against an Approved Inspector unless there were collateral warranties in place.