Personal liability of building inspectors

• Published date: 03 June 2020
• Author: Mr Richard Hargreaves
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Arbitration & Dispute Resolution, Construction & Planning
• Law Firm: Wynn Williams Lawyers

There is currently a trend amongst plaintiffs to commence proceedings against building inspectors personally in defective building cases. This is only appropriate in very specific circumstances.

A 'normal' situation, by way of example, is this: a purchaser wants to buy a house. They employ an inspector (a builder or specific pre-purchase inspection company) to look around the house and prepare a report. This is usually to satisfy the builders inspection condition in the standard-form sale and purchase agreement. The report says that the house is in good condition. The purchasers buy the house and discover that it leaks.

Variations on this 'normal' situation are where the report has been prepared for the vendor and provided to the purchaser with the property information pack, or where the house has some other undiscovered defect. Claims where buyers allege that the report missed earthquake damage are turning up in Christchurch, and will likely follow the same case law as leaky building claims.

Proceedings are usually commenced against the vendor and the inspection company, often alleging misrepresentation, or negligent misstatement, alongside misleading and deceptive conduct under section 9 of the Fair Trading Act. Very frequently, however, the person who actually inspected the house is joined personally to the proceeding, even if they say they were an employee of a limited liability company.

Why plaintiffs join inspectors personally

The reasons that inspectors are joined personally are fairly obvious, from the plaintiff's point of view. A limited liability company is just that - as a distinct legal personality it has liability limited to its assets. Such companies are often uninsured and have very few assets. The private individual who wrote the report, however, will probably own a house, or have retirement savings which can be used to pay a judgment debt. Naming the inspector personally is also used as leverage by plaintiffs. The threat that an inspector will lose their house and life savings will, plaintiffs think, convince them to throw whatever they can afford at the litigation to make it go away.

The circumstances in which an inspector is liable personally are very clear in case law. Despite this, we are frequently engaged to defend inspectors who have been personally joined to proceedings where there is no legal basis to support their personal liability. Such claims are usually the result of a failure on the part of the plaintiffs' lawyers to...