Written by: Griffiths & Armour on: 15 Mar 2021
Hart vs Large: the risks v rewards, and consultants’ certificates v insurances
In recent weeks, surveyors have been following the case of Hart vs Large closely due to its relevance for members delivering home surveys to customers. The case has acted as an important reminder for surveyors on the scope of their duties in advising prospective buyers. Our Professional Risks Director, Stephen Hargreaves offers insight into this case and its relevance for all construction professions.
At first blush the Court of Appeal’s recent decision in Hart v Large ( EWCA Civ 24) sounds like a dry read, mainly of interest to lawyers. The appeal court described the case as being “unusual” as claims against surveyors go, chiefly because the point in dispute at the appeal stage was a relatively narrow one, limited (as it was) to what the correct measure of damages should be in a claim against a surveyor.
Beneath the surface, on the other hand, the case illustrates risks that are run every day by many construction professionals of all disciplines, and which also pop up time and time again in our decades of experience of disputes. Eagle eyed readers will note that we have previously touched upon some of these themes in our recent publications and risk management talks.
In a nutshell, this case concerned a house situated on a cliff top in Devon offering impressive sea views but was very much exposed to the elements. It had been significantly rebuilt and extended by the vendors since its original construction in the 1920s. The purchasers explained to the court of first instance that in their view “there was something not quite right about the workmanship on the house, despite the impressive first impressions”. For that reason they were apparently open minded about what might be revealed by the Home Buyer’s survey that they commissioned.
The survey report produced a valuation figure very much in line with the purchase price that had been provisionally agreed, and the deal went ahead. The purchasers moved in but gradually discovered a range of defects with the previous owners’ works, some of which (mainly damp related) were so serious that eventually the only solution was demolition and reconstruction. The purchasers therefore sued their surveyor. They also sued their conveyancing solicitors as well as the architects who had advised on the alteration and extension works (neither of those aspects is covered in this article).
The Surveyor’s Liability
The court found that the surveyor had negligently failed in his obligations principally because:
(i) he had failed to see some of the general warning signs of poor workmanship;
(ii) he had not seen visible damp proofing in places where he should have expected to see it;
(iii) he had wrongly assumed (without evidence) that damp-proofing was present because the rebuilding works had only recently been completed and with the involvement of an architect; and
(iv) he should have advised that further investigations were required.
The court conceded that he could not have been expected to see all of the damp proofing defects because the walls had been rendered in such a way as to make this impossible. However, there were some locations where a damp-proof membrane should have been visible but was not. He should therefore have seen enough to give rise to a “trail of suspicion” and hence recommended further inquiry.
The second limb of the court’s finding on liability concerned the fact that the alteration and extension works had been undertaken without an NHBC warranty. The purchasers therefore had no contractual claim against the contractors or the architects if those works turned out to be defective. For that reason the buyers alleged that the surveyor had been further negligent in his failure to advise them to obtain a professional consultant’s certificate (PCC) as a pre-condition of the purchase.
The court agreed. It decided that a PCC was crucially important to the buyers to the point where they should have been advised not to proceed with the purchase without one: ”the PCC was the best (perhaps the only) ‘insurance’ which the Harts could obtain in relation to the standard and quality of the extensive rebuilding works”.
The court went on to award damages of £389k against the surveyor.
Why is this case of interest?
Whilst the Court of Appeal described this case as unusual for the reasons given above, we argue that it demonstrates some classic traits:
• Working for lay clients is a theme which we have previously highlighted as introducing an enhanced degree of reliance on a professional’s advice and a correspondingly higher degree of liability risk.
• High value claims can emanate from small commissions, such as in this case where the surveyor charged £600 for his services but incurred £389k in damages alone. The award would probably have been higher had it not been for the architect and solicitor defendants having already paid £376k between them toward the purchasers’ losses. This disproportionality between risk and reward is a theme that we covered in our 2020 publication, A Brave New World, The Claims Context.
• Pre-purchase surveys amount to investment advice because they drive the buyers’ decision whether or not to proceed with the deal, whereas (for example) a condition survey in relation to a building that the client already owns carries far less risk. This flows naturally from the previous comment but the point is a separate and broader one because breach of duty in this category exposes consultants to a different scale of losses. Pre-purchase surveys are one example but there are others including feasibility studies (depending on the circumstances), fund monitoring for lenders and others as also set out in our 2020 publication.
The Professional Consultant’s Certificate
No other commentators have picked up on what is one of the most interesting aspects of this case: namely the way in which the court apparently so blithely adopted the expert witnesses’ evidence that a PCC is more than merely a professional opinion and can properly be regarded as the next best thing to an insurance policy.
It is interesting to some extent as a reflection of the attitude that continues to pervade the construction industry from the top down in contractual terms. Owners of projects (employers) typically prefer to transfer risk rather than managing it or retaining it, chiefly by converting risks into liabilities through contracts with their various suppliers and then relying on those suppliers to insure those liabilities. Home buyers aren’t owners of projects in nearly the same sense that commercial developers are, and there is an obvious difference between them in terms of their respective ability (and financial wherewithal) to retain and manage risk. Mortgage lenders are in a different category again – historically they have often insisted on PCCs as a condition of lending and their interests also feature heavily in the current debate around EWS1 forms.
We would argue that had the purchasers in Hart v Large managed to obtain a PCC, nothing much would have changed in practice. They would still have proceeded with their purchase at the same price, they would have discovered the same defects after moving in and they would still probably have sued both the surveyor and the architect. Their experience overall would have been every bit as miserable with or without a PCC.
In order to recover any compensation they would still have been reliant upon the architect’s/surveyor’s PI insurance policies – both of which would in the first instance have operated to defend Mr & Mrs Hart’s claims and would only ever indirectly have operated to their benefit.
The court rightly pointed out that “the willingness of a firm of architects to issue such a Certificate would be an acid test of the architects’ faith in the quality of the redeveloped building”. If the surveyors and solicitors had given proper advice about the need for a PCC but none had been forthcoming then the sale would simply never have gone ahead and the purchasers would have lost nothing.
It may also have been unrealistic for a surveyor in these circumstances to suggest that an architect should be approached to provide a PCC in the context of the proposed sale. After all, the court had already remarked on the enormous gap between the surveyor’s own earnings and the liability that he incurred in return – why therefore would any architect ever concede to a purchaser’s request for a PCC, opening itself up to liability on a similar scale in return for perhaps no fee at all?
If you have any questions about the contents of this article, please get in touch with your usual Griffiths & Armour contact or click below to submit your enquiry to Stephen Hargreaves.