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Tony, a property developer, sold a one bedroom apartment to Michael for £ 100,00. The apartment was one of a large block of apartments which were erected upon land that had been unoccupied for several years. Tony had discovered that the entire foundations of the block were unsafe and insecure because Gent Local Authority had failed to inspect the foundations properly. The apartments built on the ground floor were especially vulnerable to loss in value and potential danger to the health and safety of the occupants. Tony and Michael were friends and Tony knew that Michael was anxious to find affordable accommodation following a break up with his long term partner. Tony informed Michael that the property was the 'best value likely to be found in the area'. This and similar statements were made over various lunches the two had organized to discussthe possible sale of the property. Unfortunately, the defect was not detected during the estate agent's survey. Soon after purchase, the state of the property became apparent, and Michael was forced to spend twice the value of the property in order to correct the defects and address the health and safety threats posed by the defective state of the property.
Advise Michael, the Gent Local Authority and the estate agents of their liability in respect of the acts and statements relating to the defective property.

Answer

Defective buildings are a problematic area in the English tort law. Earlier, local authorities could be held responsible for negligence in surveys and inspections (Anns And Others v Merton London Borough Council, discussed below) but after the decision in Murphy v Brentwood DC, this position is no longer tenable. Therefore, now local authority is liable only in case of actual physical damage. Economic loss in not part of their liability. With respect to builders and third parties like estate agents, surveyors for bank mortgages, liability for economic loss may be created in tort. Tony is the developer in this case and the estate agents are also involved and they have given their advice and conducted a survey of the property in which the defects in the building have not been detected by them. The Gent Local Authority has also failed to conduct proper inspection of the property and has failed to spot the defects in the property. Therefore, their liability can be seen in the context of the relevant case law as discussed below.

Tony

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Tony has mentioned to Michael that the apartment is the 'best value likely to be found in the area’ and made similar such statements. Although theses statements do not directly have a bearing upon the condition of the property in terms of defects, Tony is under a duty to inform Michael of such defects if he has knowledge of these defects. Not informing the defects and instead making laudatory statements about the property may amount to a tort of negligent misrepresentation.

In Hedley Byrne & Co Ltd v Heller & Partners Ltd,15 the court established that duty of care may arise in case of statements also, especially where the relationship between the parties is sufficiently proximate to establish such a duty. In this case, Tony is the developer from whom Michael is purchasing the property. This established the proximate relationship between them.

In Smith v Eric S Bush,16 the mortgagee’s surveyors were held liable for misstatements regarding the condition of the building. In Caparo Industries plc v Dickman,17 because the court found no proximity between the auditor (who made the misstatement) and the bidder who relied on it and bought the company, the auditor was held not liable. It proceeds therefore, that there must be a degree of proximity between the person making the misstatement and the person relying on it. In this case, Tony is the builder and also a friend of Michael.18

The Defective Premises Act 1974, also provides that the builder or the developer of a property is under a duty to take care that the work done is professional and that, inter alia, the dwelling will be fit for habitation when completed (s.1).19 Therefore, Tony can be sued by Michael under tort as well as under the statutory provisions.

Gent Local Authority

In Anns And Others v Merton London Borough Council,20 the local authority was held liable for their failure to spot a fault in the building, an apartment of which was sold to the plaintiff. The court held that the authority should have inspected the building and should have done so with reasonable care. Such a duty of care might exist at common law even if the statute also imposed such a duty and therefore a legal duty of care existed towards the plaintiff. The decision in this case has to be now seen in light of Murphy v Brentwood DC,21 where the local authority was found not to have a duty of care to owners or occupiers of property for economic loss except in relation to defects which caused personal injury or physical damage to property other than the defective propertyitself. Due to the Murphy decision, the position on local authority in such cases is that the local authority is liable only in case of physical injury due to defects in building. Where the loss is pure economic loss, the local authority is not liable.

In this particular case, Michael has not suffered an actual physical injury due to the defective structure of the house. What he has suffered is a pure economic loss. Therefore, the Gent Local Authority following the Murphy judgement is not to be held liable for the economic loss suffered by Michael in correcting the defects in the building. This is so even where Gent Local Authority has failed to take reasonable care during the inspection of the building due to which it was unable to spot the defects in the building, which include unsafe foundations and potential danger to safety and health of the occupants.

Estate Agents

In Henderson v Merrett Syndicates Ltd22 it was held that where a party relies on another for advice, the other is under a duty of care and can be said to have assumed responsibility to another party for provision of information or services so as to give rise to a duty of care not to cause economic loss. In McCullagh v Lane Fox and Partners Ltd,23 the estate agents were allowed to escape liability for statements made in favour of the property due to the disclaimer in the contract with the purchaser of the property. However, in the present case, there is no such disclaimer in the contract. In Yianni v Edward Evans & Sons,24 the respondent who were valuers reported to a building society that a property would be a sufficient security and which report the purchaser relied to purchase the property, were found to have a duty of care to the purchasers.

In Hedley Byrne & Co Ltd v Heller & Partners, the House of Lords held that where there was a ‘special relationship’ between the maker of a statement and the receiver of a statement then there could be liability for the economic loss caused. Here, as an estate agent and purchaser of the property for which advice is being given, the estate agent has a special relationship with Michael that creates a duty of care towards Michael. Michael can sue the estate agents for their negligence in conducting the proper survey of the property.

List of Cases

    1. Anns And Others v Merton London Borough Council, [1977] UKHL 4.
    2. Caparo Industries plc v Dickman, [1990] 2 AC 605
    3. Hedley Byrne & Co Ltd v Heller & Partners Ltd, [1964] AC 465.
    4. Henderson v Merrett Syndicates Ltd, [1994] 3 All ER 506 (HL).
    5. McCullagh v Lane Fox and Partners Ltd, [1996] PNLR 205
    6. Murphy v Brentwood DC [1990] 2 All ER 908 (HL).
    7. Smith v Eric S Bush, [1989] 1 AC 831
    8. Yianni v Edward Evans & Sons, [1981] 3 All ER 592.

Bibliography

    1. Barker K, ‘Hedley Byrne v Heller: Issues at the Beginning of the Twenty-First Century’, retrieved
    2. Owen S, Lewis JR, Law for the Construction Industry (Routledge, 2014)

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