Department of the Environment v Thomas Bates & Son Ltd and others

Negligence — Liability of builders — Appellant department’s case, based on Anns v Merton London Borough Council, demolished by contemporaneous decision in Murphy v Brentwood District Council that Anns was wrongly decided — The authority of Anns had become increasingly doubtful in recent years but it is now formally disavowed by the House of Lords, invoking the Practice Statement (Judicial Precedent) [1966] 1 WLR 1234 — In the present case the appellant department’s claim was for pure economic loss and this was clearly ruled out by the Murphy decision

The appellant
department held a long underlease of parts of the complex known as Great Oaks
House, Basildon in Essex — The underlease comprised parts of a low-rise
two-storey building with a flat roof and the upper nine storeys of an 11-storey
tower block — The appellants were under an obligation to maintain the premises
demised to them in good repair — The appellants’ troubles began with water
leaking from the flat roof — In the course of carrying out remedial work some
of the concrete was found to be soft in the low-rise building — Worse still,
soft concrete was found in the pillars supporting the floors of the tower — The
concrete mix had an excess of aggregate and a deficiency of cement — The
appellants sought to recover expenditure in carrying out remedial works — They
succeeded partially in the official referees’ court in their claim in respect
of the flat roof, but failed to recover expenditure incurred in strengthening
the pillars supporting the floors in the tower block — The judge found that at
no time did the weakness of the concrete give rise to imminent danger to health
or safety and that there was no evidence that there was at any time cracking of
the tower block caused by weakness of the concrete — He also found that the
appellants’ purpose was to cure a defect which would otherwise prevent them from
making full use of the building for the purpose for which it was designed — In
the light of these findings the judge held that, on the authority of Pirelli
General Cable Works Ltd v Oscar Faber & Partners, he was bound to dismiss the claim — The
Court of Appeal dismissed an appeal on substantially the same grounds —
Appellants appealed to the House of Lords

The House of
Lords made short work of the appeal — The foundation of the appellants’ case,
Anns v Merton London Borough Council, had been removed by the House’s
complete rejection of it in Murphy v Brentwood District Council, decided at the
same time as the present appeal — It was the House’s unanimous view that, while
a builder would be liable, under the principle of Donoghue v Stevenson, in
the event of a defect, before it had been discovered, causing physical injury
to persons or damage to property (other than the building itself), there was no
sound basis in principle for holding him liable for the pure economic loss
suffered by a purchaser who discovered the defect and had to expend money in
order to make the building safe and suitable for its intended purpose — In the
present case the loss suffered by the appellants was pure economic loss — At
the time they carried out the remedial work on the concrete pillars the
building was not unsafe by reason of the defective construction — It had,
however, a defect of quality which made the appellants’ underlease less
valuable than it would otherwise have been — A purchaser, faced with the need
to strengthen the pillars, would be likely to pay less for the underlease than
if they had been sound — That showed the economic character of the appellants’
loss — Appeal dismissed

The following
cases are referred to in this report.

Anns v Merton London Borough Council [1978] AC 728; [1977] 2 WLR
1024; [1977] 2 All ER 492; (1977) 75 LGR 555; [1977] EGD 604; 243 EG 523 &
591, [1977] 2 EGLR 94; [1977] JPL 514, HL

Donoghue v Stevenson [1932] AC 562, HL

Murphy v Brentwood District Council [1990] 3 WLR 414, [1990] 2 All
ER 908, HL

Pirelli
General Cable Works Ltd v Oscar Faber &
Partners [1983] 2 AC 1; [1983] 2 WLR 6; [1983] 1 All ER 65; [1983] EGD 889;
(1982) 265 EG 979, [1983] 1 EGLR 135, HL

This was an
appeal by the Department of the Environment from the decision of the Court of
Appeal (reported at [1989] 2 EGLR 139; [1989] 26 EG 121) dismissing an appeal
from the decision of the late Judge Smout QC, who had dismissed the
department’s claim for recovery of expenditure in strengthening pillars at the
building complex, Great Oaks House, Basildon, Essex. The respondents were
Thomas Bates & Son Ltd, builders.

John Uff QC
and Michael Lerego (instructed by the Treasury Solicitor) appeared on behalf of
the appellants; David Hunt QC and Terence Mowschenson (instructed by Kingsford
Stacey, agents for Tolhurst & Fisher, of Southend on Sea) represented the
respondents.

In his speech,
LORD KEITH OF KINKEL said: This case is concerned with a building
complex situated at Basildon in Essex and known as Great Oaks House. The owners
of the site, Basildon Development Corporation, granted a lease of it to EMI
Development Holdings Ltd (‘EMI’) (then ABC Developments Ltd), which on February
18 1970 contracted with the respondents (‘the defendants’) for the construction
of the complex. The building operations, to a design by the corporation’s
architect, took place during 1970 and 1971. The entire complex comprises four
buildings, a low-rise two-storey building with a flat roof, occupied partly as
a supermarket and partly as offices and a job centre, an 11-storey tower block,
the upper nine storeys of which are used as offices, a cinema and a public
house. On October 15 1971 EMI agreed to grant to the appellants (‘the
plaintiffs’) an underlease of certain parts of the complex for a term of 42
years from the certificate of completion or from readiness for occupation,
whichever was the earlier. The subjects leased were to include those parts of
the low-rise building which were to be used as a job centre and as offices and
also the upper nine storeys of the tower block. The plaintiffs entered into
occupation of the subjects on December 30 1971 and the underlease was executed
on March 16 1972. The plaintiffs were taken to be bound by it to maintain the
demised premises in good repair during the term of the underlease and also to
pay a proportion of the cost of maintaining certain other parts of the complex.
EMI’s reversion to the property, less one day, was acquired by the Church
Commissioners on April 14 1972.

The
plaintiffs’ occupation of their premises was untroubled until March 1979, when
water began to leak through into the job centre from its flat roof. The leaks
gradually got worse and worse and investigations in 1980 disclosed serious
defects in the roof. The plaintiffs’ staff were temporarily evacuated and
remedial measures undertaken. These were carried out between September 1981 and
August 1982 at a cost of £286,491. Litigation ensued, involving EMI, the Church
Commissioners, the plaintiffs and the defendants. The various actions were
eventually settled, the result so far as the plaintiffs were concerned being
that they paid £50,500 plus interest, in total £62,736, towards the costs of
the remedial works, by virtue of the covenant for contribution contained in
their underlease.

In the course
of the carrying out of the remedial work to the flat roof it was discovered
that some of the concrete in the low-rise building was soft. This led to an
investigation of the pillars supporting the various floors of the tower block,
and it was found that the concrete in these was also soft. This was due to the
concrete mix having contained an excess of aggregate and a deficiency of
cement. The plaintiffs’ expert expressed the opinion that nine pillars were
insufficiently strong to support safely the design load of the building. Of
these, six were above first-floor level, the plaintiffs being solely
responsible for maintenance above that level, and three were below first-floor
level, the plaintiffs being responsible under their underlease to contribute
24% of the cost of maintenance there.155 It was decided to strengthen the nine pillars, and the cost of doing so was
£95,111. The cost of strengthening the six pillars above first-floor level was
£63,407. The cost of strengthening the remaining three, below first-floor
level, was £31,704, 24% of which is £7,609.

The plaintiffs
commenced the present proceedings against the defendants by writ issued on
October 4 1982. By their amended statement of claim they sought payment of the
sum of £62,736, being the amount they had paid in respect of remedial works to
the flat roof, together with £85,847 in respect of alternative accommodation
while the works were being carried out. They also sought payment of £71,016 in
respect of the cost of strengthening the pillars. The plaintiffs’ cause of
action was pleaded in negligence, it being alleged that the defendants owed
them a duty to use reasonable skill and care in the construction of the
complex. The defendants by their defence denied the existence of any duty of
care owed to the plaintiffs and any breach of duty. They also pleaded
limitation. Further, they joined Basildon Development Corporation (which
subsequently became part of the Commission for the New Towns) as third party,
alleging negligence on the part of the corporation’s architect in the design of
the flat roof.

The case came
on for trial before Judge Smout QC as official referee. By judgment given on
January 26 1987 he found in favour of the plaintiffs against the defendants in
respect of their claim arising out of the remedial works to the flat roof,
though not to the full extent of it, and also found Basildon Development
Corporation liable to contribute 30% of the damages for which the defendants
were liable. The plaintiffs’ claim to damages in respect of the concrete
pillars in the tower block was dismissed. In relation to the latter claim the
learned judge made a number of specific findings of fact, which included these:

(4) At no time did the weakness of the concrete
in the pillars of the tower block give rise to imminent danger to health or
safety of either the plaintiff[s’] employees or of the public . . .

(5) There is no evidence that there was at any
time cracking of the tower block occasioned by the weakness of the concrete.

(6) The strengthening of the pillars by the
plaintiff[s] was not with the intention of averting imminent danger to health
or safety for it was recognised that there was no such imminent danger. The
purpose was to cure a defect which otherwise prevented the plaintiff[s] from
making full use of the building to the extent for which it was designed.

In the light of
these findings Judge Smout held that in the absence of any physical damage or
imminent threat to health or safety he was obliged by authority, in particular Pirelli
General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1,
to dismiss the claim.

The plaintiffs
appealed to the Court of Appeal against dismissal of the claim relating to the
defective pillars. There was no appeal by any party with regard to the decision
upon the claim in respect to remedial works on the flat roof. On November 24
1988 the Court of Appeal (O’Connor, Nicholls and Taylor LJJ) dismissed the
appeal. They did so on substantially the same grounds as those relied on by the
judge, namely that the strengthening of the pillars had been carried out not
with a view to avoiding any imminent danger to persons or property but in order
to make the building fit to carry its design load. The plaintiffs now appeal,
with leave given in the Court of Appeal, to your Lordships’ House.

The foundation
of the plaintiffs’ case is Anns v Merton London Borough Council
[1978] AC 728. That decision was concerned directly only with the liability in
negligence of a local authority in respect of its functions in regard to
securing compliance with building byelaws and regulations. The position of the
builder as regards liability towards a remote purchaser of a building which
suffered from defects due to carelessness in construction was touched on very
briefly. However, it has since been generally accepted that similar principles
govern the liability both of the local authority and of the builder.

It has been
held by this House in Murphy v Brentwood District Council* that Anns
was wrongly decided and should be departed from, by reason of the erroneous
views there expressed as to the scope of any duty of care owed to purchasers of
houses by local authorities when exercising the powers conferred upon them for
the purpose of securing compliance with building regulations. The process of
reasoning by which the House reached its conclusion necessarily included close
examination of the position of the builder who was primarily responsible,
through lack of care in the construction process, for the presence of defects in
the building. It was the unanimous view that, while the builder would be liable
under the principle of Donoghue v Stevenson [1932] AC 562 in the
event of the defect, before it had been discovered, causing physical injury to
persons or damage to property other than the building itself, there was no
sound basis in principle for holding him liable for the pure economic loss
suffered by a purchaser who discovered the defect, however such discovery might
come about, and required to expend money in order to make the building safe and
suitable for its intended purpose.

*Editor’s
note: Reported at [1990] 3 WLR 414.

In the present
case it is clear that the loss suffered by the plaintiffs is pure economic
loss. At the time the plaintiffs carried out the remedial work on the concrete
pillars the building was not unsafe by reason of the defective construction of
these pillars. It did, however, suffer from a defect of quality which made the
plaintiffs’ lease less valuable than it would otherwise have been, in respect
that the building could not be loaded up to its design capacity unless any
occupier who wished so to load it had incurred the expenditure necessary for
the strengthening of the pillars. It was wholly uncertain whether during the
currency of their lease the plaintiffs themselves would ever be likely to
require to load the building up to its design capacity, but a purchaser from
them might well have wanted to do so. Such a purchaser, faced with the need to strengthen
the pillars, would obviously have paid less for the lease than if they had been
sound. This underlines the purely economic character of the plaintiffs’ loss.
To hold in favour of the plaintiffs would involve a very significant extension
of the doctrine of Anns so as to cover the situation where there existed
no damage to the building and no imminent danger to personal safety or health.
If Anns were correctly decided, such an extension could reasonably be
regarded as entirely logical. The undesirability of such an extension, for the
reasons stated in Murphy v Brentwood District Council, formed an
important part of the grounds which led to the conclusion that Anns was
not correctly decided. That conclusion must lead inevitably to the result that
the plaintiffs’ claim fails.