Negligence — Duty of care — Fault of subcontractors failing to follow manufacturers’ instructions in regard to application of plaster — Whether main contractors liable to lessees and occupiers of flat for damage caused by subcontractors’ negligence — Issues as to product-liability in tort and claims for pure economic loss — Review of authorities and analysis by House of Lords of questions on borderline between contract and tort — Appeal from Court of Appeal who had reversed trial judge’s finding that main contractors were liable — The plaintiffs, who had succeeded before the judge and now appealed against the Court of Appeal’s reversal, were, first, a company holding a long lease of the subject flat and, second, a husband and wife who were occupiers of the flat and in fact controlled the company — The freeholders were the Church Commissioners — The plaintiffs had originally claimed damages in respect of stripping off plaster and replastering, damage caused to possessions in the flat and disturbance of the individual plaintiffs, but further claims were made at the trial for the estimated cost of additional remedial work and prospective loss of rent — The trial judge found against the main contractors, Wates, and dismissed the action against the Church Commissioner — The Court of Appeal allowed the main contractors’ appeal and dismissed a cross-appeal by the plaintiffs in regard to the Church Commissioners — The Court of Appeal reversed the judge’s decision primarily on the ground that the main contractors, Wates, having employed competent subcontractors to carry out the work, owed no further duty of care to the plaintiffs — The court, however, also accepted in part a submission that even if the plasterwork had all been done by their own employees the damage was not recoverable as it represented pure economic loss — In dismissing the appeal the speeches in the House of Lords went more deeply into the difficult juristic questions surrounding this latter point
of his review of the authorities Lord Bridge referred to developments in the
relevant law since 1970, including statute law in the form of the Defective
Premises Act 1972 and case law — In a number of cases, such as Dutton v Bognor Regis
Urban District Council, the New Zealand case of Bowen v Paramount Builders
(Hamilton) Ltd, Anns v Merton London Borough Council and Batty v Metropolitan Realisations
Ltd, a product-liability doctrine of liability in tort, damage and economic
loss appeared, which threatened to blur the difference between it and
obligations in contract — The decision of the majority in Junior Books Ltd v Veitchi Ltd
could perhaps be explained on the ground of the uniquely proximate relationship
between the pursuer and the defender, but the dissenting speech of Lord Brandon
expressed the view now recognised by the House as sound — The duty of care laid
down in Donoghue v Stevenson, which was the only foundation for the obligation now
under discussion, was based on the existence of a danger of physical injury to
persons or their property; and the relevant property was property other than
that which gave rise to the danger of physical damage in question — Lord
Brandon’s reasoning received powerful support in the United States of America
in East River Steamship Corporation v Transamerica Delaval Inc, although a
different view seemed to be firmly established in New Zealand — In the East
River case the court held that ‘no products liability claim lies . . . when a
commercial party alleges injury only to the product itself resulting in purely
economic loss’ — In its application to the present case this principle meant
that even if Wates themselves had been responsible for the plasterwork in the
subject flat, the damages recoverable from them by D & F Estates would have
been a trivial sum and Mr and Mrs Tillman (the occupiers of the flat) could
have established no claim for damages for disturbance
Appeal’s primary ground for allowing Wates’ appeal was that they had properly
employed competent subcontractors and the House agreed with this — Wates could
only have been held liable if they had assumed a personal duty to all the world
to ensure that the building would be free from dangerous effects — There was no
ground for assuming that they had — If, of course, a main contractor came to
know that a subcontractor was operating dangerously and condoned his
negligence, the main contractor would make himself potentially liable as a
joint tortfeasor; but there was no suggestion of that in this case — 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] EGD 604; (1977) 243 EG 523 & 591, HL,
[1977] 2 EGLR 94
Batty v Metropolitan Property Realisations [1978] QB 554; [1978] 2
WLR 500; [1978] 2 All ER 445; [1978] EGD 742; (1977) 245 EG 43, CA
Bowen v Paramount Builders (Hamilton) Ltd [1975] 2 NZLR 546;
[1977] 1 NZLR 394, CA of New Zealand
Cynat
Products Ltd v Landbuild (Investment &
Property) Ltd [1984] 3 All ER 513
Donoghue v Stevenson [1932] AC 562, HL
Dutton v Bognor Regis Urban District Council [1972] 1 QB 373;
[1972] 2 WLR 299; [1972] 1 All ER 462; (1971) 70 LGR 57; [1972] 1 Lloyd’s Rep
227, CA
East
River Steamship Corporation v Transamerica
Delaval Inc (1986) 106 SCt 2295, Supreme Court of USA
Hedley
Byrne & Co Ltd v Heller & Partners Ltd
[1964] AC 465; [1963] 3 WLR 101; [1963] 2 All ER 575; [1963] 1 Lloyd’s Rep 485,
HL
Junior
Books Ltd v Veitchi Co Ltd [1983] 1 AC 520;
[1982] 3 WLR 477; [1982] 3 All ER 201, HL
Mount
Albert Borough Council v Johnson [1979] 2
NZLR 234, CA of New Zealand
Queensway
Discount Warehouses v Graylaw Properties Ltd
February 19 1982, unreported
Rivtow
Marine Ltd v Washington Iron Works [1973] 6
WWR 692, Supreme Court of Canada
This was an
appeal by D & F Estates and Mr and Mrs Tillman, the lessees and occupiers
respectively of flat 37 in Chelwood House, Gloucester Square, London W2, from
the decision of the Court of Appeal allowing an appeal by Wates Ltd, the third
defendants, from the decision of Judge Esyr Lewis QC in favour of the then
plaintiffs, the present appellants. The only parties to the present appeal were
D & F Estates and Mr and Mrs Tillman and Wates Ltd. The first defendants,
the Church Commissioners, had dropped out following the dismissal by the Court
of Appeal of a cross-appeal by the plaintiffs; and the second defendants, Hyde
Park Property Development Co Ltd, in liquidation, had taken no part in the
action.
Richard
Fernyhough QC and Robert Glancy (instructed by Mishcon de Reya) appeared on
behalf of the appellants; Donald Keating QC and Richard Seymour (instructed by
Masons) represented the respondents.
In his speech,
LORD BRIDGE OF HARWICH said: The only parties to the litigation from which
this appeal arises who are now concerned in the appeal are D & F Estates
Ltd and Mr and Mrs Tillman, who were plaintiffs in the action, and Wates Ltd,
who were the third defendants in the action. Between 1963 and 1965 Wates were
the main contractors employed by a company now in liquidation to build a block
of flats on land belonging to the Church Commissioners in Gloucester Square,
London W2. The building was completed in October 1965 and was named Chelwood
House. On October 15 1965 the Church Commissioners granted a lease of flat 37
to D & F Estates for a term of 98 years from March 25 1963. D & F
Estates is one of a group of companies controlled by MR and Mrs Tillman. From
1965 to 1981 Mr and Mrs Tillman occupied flat 37 pursuant to an arrangement
with D & F Estates, the terms of which we do not know, but which I presume
to have been a licence.
In August
1980, while Mr and Mrs Tillman were away on holiday and the flat was being
redecorated, the decorators discovered that the plaster on certain ceilings and
on one wall was loose and some of the plaster fell down. All the loose plaster
then discovered which had not already fallen was hacked off and the areas
affected were replastered and redecorated at a cost of £10,676.70. The present
action was commenced in December 1980 advancing claims by D & F Estates in
respect of that damage and by Mr and Mrs Tillman in respect of disturbance
caused to them while the works in the flat were being carried out. But
following an expert investigation in 1983 further defective plaster to both
walls and ceilings was discovered and when the action came for trial before
Judge Esyr Lewis QC in June 1985 the damages claimed by D & F Estates
included the estimated cost of further remedial work and prospective loss of
rent which would be suffered while that remedial work was carried out.
When Chelwood
House was built the plaster-work was carried out not by Wates themselves but by
a firm of subcontractors whom they employed called R S Hitchens. The judge
found that all the plaster applied to concrete surfaces was defective because
the subcontractors, using a particular plaster then newly on the market called
‘Gyplite’, had failed to follow the manufacturers’ instructions. They should
have applied one coat of bonding plaster and one coat of finishing plaster, but
instead had interposed a coat of browning plaster and it was this that in due
course caused plaster, which should have remained sound for the lifetime of the
building, to lose its key and require replacement. He said:
In my
judgment, a careful and competent plasterer would not have taken the risk of
departing from what I find to be clear and unambiguous instructions to use
bonding plaster followed by finishing plaster on concrete surfaces generally.
In other words I consider that the plasterers were at fault. It was suggested
on behalf of the plaintiffs that a reason why the plasterers did not follow the
manufacturers’ instructions was because it was more economical and easier to
use undercoats of bonding plaster and browning plaster to achieve the desired
thickness instead of a single undercoat of bonding plaster. I am not satisfied,
having heard the evidence of Mr Marshall about the cost of applying the
different grades of plaster, that this is the correct explanation and it is not
necessary for me to come to any conclusion about it. It is sufficient for me to
say that in my judgment the plasterers did not exercise due care in that they
failed to follow the manufacturers’ instruction.
When he turned
to consider the liability of Wates, the judge, in a key passage, said:
I have to
decide in this case what the scope of Wates’ duty of care to the three
plaintiffs was and whether the plaintiffs or any of them have suffered loss as
a result of its breach by Wates. The duty of care itself is of course not
delegable. In the end, [counsel for the plaintiffs’] submission was that Wates
owed a duty to the plaintiffs adequately to supervise the work of the
plasterers and that they failed to discharge that duty. I consider this to be
the correct analysis of the scope and extent of Wates’ duty of care. It has
never been suggested that Wates acted improperly in subcontracting the
plastering work or that they failed to take care to appoint competent
subcontractors. Clause 17 of the JCT form of contract entitled Wates to
subcontract with a written consent of the architect and the evidence of Mr
Perry showed that great care was taken in the choice of subcontractors. If, as
I find, Wates acted properly in subcontracting the plastering work, the only
way in which they could discharge their duty of care was by taking reasonable
steps to see that the plasterers did their work properly. Wates cannot, in my
judgment, be held liable to the plaintiffs merely because the plasterers did
not in fact do their work properly.
Later, the
judge said:
Should proper
supervision by Wates have ascertained that the manufacturers’ instructions were
not being followed in relation to the plastering of concrete surfaces in flat
37? In my view the critical issue is
whether Wates’ supervisors knew or ought to have known what the manufacturers’
instructions were.
The judge then
reviewed the evidence of witnesses in relation to the general practice of
supervision of subcontractors by main contractors. He found that Wates’
supervisors must have known that three coats of plaster were being applied. He
made no finding that they knew that this contravened the manufacturers’
instructions, but he held in effect that they ought to have known and added:
I therefore
conclude that Wates were in breach of their duty to provide adequate and proper
supervision of the plastering work in relation to the concrete surfaces and
that they are liable in negligence to the plaintiffs for this breach of their
duty.
The judge
awarded damages exclusive of interest to D & F Estates of £10,676.70 in
respect of the cost of the remedial work undertaken in 1980, £53,549 in respect
of the estimated cost of future remedial works, and £24,000 in respect of loss
of rent while the future remedial works were carried out. To Mr and Mrs Tillman
he awarded £500 each, exclusive of interest, in respect of loss of amenity
during the period when they were occupying the flat while the remedial works
were done in 1980.
On appeal by
Wates the Court of Appeal (Fox and Glidewell LJJ and Sir Roualeyn
Cumming-Bruce) reversed the judge’s decision primarily on the ground that Wates,
having employed competent subcontractors to carry out the plastering work owed
no further duty of care to the plaintiffs in relation to the execution of the
work by the subcontractors. But the Court of Appeal also considered a
submission made on behalf of Wates that the cost of repairing the defective
plaster, even if the plaster work had been done by their own employees, was not
damage which D & F Estates could recover in tort since it represented pure
economic loss. The Court of Appeal rejected this submission in relation to the
cost of repairs carried out in 1980 on the ground that D & F Estates were
liable to Mr and Mrs Tillman to carry out the repairs, but accepted it in
relation to the cost of future remedial works not yet carried out, although they
assumed the factual premise, which they did not think it open to Wates to
challenge, that the remaining defective plaster represented a continuing risk
of personal injury.
The plaintiffs
now appeal by leave of your Lordships’ House.
In relation to
both issues, it is instructive and, I think, necessary to consider two
developments of the law in relation to a builder’s liability in tort for
defective premises which have been effected on the one hand by statute and on
the other by judicial development of the law by the adaptation and application
of common law principles to situations to which they had not previously been
applied. Both these developments have taken place since 1970. Both have
effected far-reaching changes in the law, at all events as it had been supposed
to be before 1970. But the two developments have been markedly different in
their scope and effect. The statutory development enacted by the Defective
Premises Act 1972 effected clear and precise changes in the law imposing
certain specific statutory duties subject to carefully defined limitations and
exceptions. This change did not, of course, operate retrospectively. The common
law developments have effected changes in the law which inevitably lack the
kind of precision attainable by statute, though limits have had to be and are
still being worked out by decisions of the courts in a spate of ensuing
litigation, including the instant case, and since our jurisprudence knows
nothing of the American doctrine of ‘prospective overruling’ and the law once
pronounced authoritatively by the courts here is deemed always to have been the
law, the changes have full retrospective operation.
The Act of
1972 was enacted following and substantially implementing the recommendations
of a Law Commission report on ‘Civil Liability of Vendors and Lessors for
Defective Premises’ (Law Commission no 40) dated December 15 1970. The report
followed the issue of two working papers and extensive consultations thereupon
as explained in paras 5 to 8. The report makes this clear distinction between
different kinds of defects in defective premises:
2 We have set out, therefore, to examine the
liability of a vendor or lessor of defective premises both in contract and in
tort; and it follows that we use the term ‘defective’ in two different senses.
From the point of view of tort liability premises are defective only if they
constitute a source of danger to the person or property of those who are likely
to come on to them or to find themselves in their vicinity. In the contractual
sense they are defective if their condition falls short of the standard of
quality which the purchaser or lessee was entitled to expect in the
circumstances. We refer to these different kinds of defects as dangerous
defects and defects of quality respectively, where it is necessary to point the
contrast.
In Part B of
the report, dealing with ‘defects of quality’ in the sense defined in the
passage quoted, the report records, at para 14:
We are not
aware of any substantial criticism of the present law as it applies to
commercial or industrial premises. In such cases the parties are normally in a
position to protect their own interests with the help of their professional
advisers. The appropriate terms for inclusion in the contract in such cases are
the subject of negotiation. Considerable disquiet has, however, been expressed
in recent years as to the operation of the law in relation to the purchase of
dwellings.
There follows
a full consideration of the position of builders and others concerned in the
construction of dwellings leading to a series of recommendations from which I
quote two significant paragraphs:
26 Amendment
of the law should be directed at improving the legal position of the purchasers
of dwellings and should in our view be designed to achieve the following
results: (a) that a builder of a dwelling (ie anyone who provides a
dwelling by constructing a new building or converting or enlarging an existing
one) should be placed under a duty, similar to his common law obligations, to
build properly and should not be able to contract out of this duty; (b)
that this duty should be imposed not only on builders, but also on anyone else,
in particular any sub-contractor or professional man, who takes on work for or
in connection with the provision of a new dwelling . . .; (c) that a
right of action in respect of faulty building of a dwelling should be available
during a limited period — (i) if the builder builds to the order of a client,
to that client; (ii) if the builder sells to a purchaser, to the purchaser; and
(iii) in either event, to anyone who subsequently acquires an interest in the
dwelling; (d) that those who (without being builders or otherwise
concerned with work taken on for or in connection with the provision of the
dwelling) arrange in the course of their business for the construction of
dwellings for sale or letting to the public, should be placed under the same
duty as builders towards persons who acquire interests in those dwellings . . .
.
32 Those persons on whom the obligations are to
be imposed should not, however, be left at risk for an indefinite period. There
should be a limit of time within which an action could be brought, running from
the date when the work was completed.
The long title
of the Act of 1972 is:
An Act to
impose duties in connection with the provision of dwellings and otherwise to
amend the law of England and Wales as to liability for injury or damage caused
to persons through defects in the state of premises
and the
following provisions of section 1 enact, with only minor changes of
draftsmanship, provisions contained in the draft bill annexed to the Law
Commission’s report:
(1) 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 the work the dwelling will
be fit for habitation when completed . . . .
(4) A person who — (a) in the course of a
business which consists of or includes providing or arranging for the provision
of dwellings or installations in dwellings; or (b) in the exercise of a
power of making such provision or arrangements conferred by or by virtue of any
enactment; arranges for another to take on work for or in connection with the
provision of a dwelling shall be treated for the purposes of this section as
included among the persons who have taken on the work.
(5) Any cause of action in respect of a breach of
the duty imposed by this section shall be deemed, for the purposes of the
Limitation Act 1939, the Law Reform (Limitation of Actions, &c) Act 1954
and the Limitation Act 1963, to have accrued at the time when the dwelling was
completed, but if after that time a person who has done work for or in
connection with the provision of the dwelling does further work to rectify the
work he has already done, any such cause of action in respect of that further
work shall be deemed for those purposes to have accrued at the time when the
further work was finished.
Section 2 of
the Act then specifically excludes from the application of section 1 dwellings
to which an ‘approved scheme’ applies conferring rights in respect of defects
when they are first let or sold for habitation. This limitation upon the new
statutory duty does not follow directly from any specific recommendation in the
Law Commission’s report, although the report discusses the scheme operated by
the National House-Builders Registration Council and it was presumably such
schemes as this that Parliament contemplated might receive the approval of the
Secretary of State under section 2, conferring exemption from liability for
breach of statutory duty under section 1.
Between the
date of the Law Commission’s report and the passing of the Act of 1972 the
courts were concerned with the first of a series of cases relating directly to
the liability in tort of local authorities for the negligent exercise of their
powers under the Public Health Act 1936 or other parallel legislation in
respect of defects in premises erected in contravention of building byelaws,
but also indirectly with the liability in tort of the builder himself. This was
Dutton v Bognor Regis Urban District Council [1971] 2 All ER
1003; [1972] 1 QB 373 decided by Cusack J at first instance in March 1971 and
by the Court of Appeal in December 1971, the very month in which the Bill which
became the Act of 1972 was introduced into the House of Commons. The case related
to a house with defective foundations which settled and cracked. The aspect of
the judgments relevant for present purposes is that concerned with the
liability of the builder, had he been sued. Referring to the application of the
principle of Donoghue v Stevenson [1932] AC 562 to the liability
of a builder in tort for injury caused by dangerous defects in a building, Lord
Denning MR said in a well-known passage [1972] 1 QB 373, at pp 393-394:
The
distinction between chattels and real property is quite unsustainable. If the
manufacturer of an article is liable to a person injured by his negligence, so
should the builder of a house be liable. After the lapse of 30 years this was
recognised. In Gallagher v N McDowell Ltd [1961] NI 26, Lord
MacDermott C J and his colleagues in the Northern Ireland Court of Appeal held
that a contractor who built a house negligently was liable to a person injured
by his negligence. This was followed by Nield J in Sharpe v E T
Sweeting & Son Ltd [1963] 1 WLR 665. But the judges in those cases
confined themselves to cases in which the builder was only a contractor and was
not the owner of the house itself. When the builder is himself the owner, they
assumed that Bottomley v Bannister [1932] 1 KB 458 was still
authority for exempting him from liability for negligence. There is no sense in
maintaining this distinction. It would mean that a contractor who builds a
house on another’s land is liable for negligence in constructing it, but that a
speculative builder, who buys land and himself builds houses on it for sale,
and is just as negligent as the contractor, is not liable. That cannot be
right. Each must be under the same duty of care and to the same persons.
This view of
the law has, of course, never been doubted since. But the presently relevant
passage in the judgment is that headed ‘Economic Loss,’ at p 396, which reads:
Mr Tapp [for
the council] submitted that the liability of the council would, in any case, be
limited to those who suffered bodily harm: and did not extend to those who only
suffered economic loss. He suggested, therefore, that although the council
might be liable if the ceiling fell down and injured a
value. He referred to the recent case of SCM (United Kingdom) Ltd v W
J Whittall & Son Ltd [1971] 1 QB 337. I cannot accept this submission.
The damage done here was not solely economic loss. It was physical damage to
the house. If Mr Tapp’s submission were right, it would mean that if the
inspector negligently passes the house as properly built and it collapses and
injures a person, the council are liable: but if the owner discovers the defect
in time to repair it — and he does repair it — the council are not liable. That
is an impossible distinction. They are liable in either case. I would say the
same about the manufacturer of an article. If he makes it negligently, with a
latent defect (so that it breaks to pieces and injures someone), he is
undoubtedly liable. Suppose that the defect is discovered in time to prevent
the injury. Surely he is liable for the cost of repair.
Referring to
the issue of economic loss, Sachs LJ said at pp 403-404:
In the
instant case there is ample evidence of physical damage having occurred to the
property. But it has been argued that this damage is on analysis the equivalent
of a diminution of the value of the premises and does not rank for
consideration as physical injury. Mr Tapp found himself submitting that if, for
instance, the relevant defect had been in the ceiling of a room, and if it fell
on somebody’s head or on to the occupier’s chattels and thus caused physical
damage, then (subject of course to his other points failing) there could be a
cause of action in negligence, but not if it fell on to a bare floor and caused
no further damage. Apparently in the former case damages would be limited so as
to exclude repairs to the ceiling: in the latter case there would be no cause
of action at all. That subtle line of argument failed to attract me and would
lead to an unhappily odd state of the law.
Stamp LJ,
although he expressed no concluded opinion, indicated a significantly different
approach to the liability of the builder in the following passage, at pp
414-415:
I now come to
consider the submission advanced by Mr Tapp to the effect that it would be an
extension of the law to hold that the particular injury suffered by the
plaintiff is an injury for which damages may be recovered. It is pointed out
that in the past a distinction has been drawn between constructing a dangerous
article and constructing one which is defective or of inferior quality. I may
be liable to one who purchases in the market a bottle of ginger beer which I
have carelessly manufactured and which is dangerous and causes injury to person
or property; but it is not the law that I am liable to him for the loss he
suffers because what is found inside the bottle and for which he has paid money
is not ginger beer but water. I do not warrant, except to an immediate
purchaser, and then by the contract and not in tort, that the thing I
manufacture is reasonably fit for its purpose. The submission is, I think, a
formidable one and in my view raises the most difficult point for decision in
this case. Nor can I see any valid distinction between the case of a builder
who carelessly builds a house which, though not a source of danger to person or
property, nevertheless, owing to a concealed defect in its foundations, starts
to settle and crack and becomes valueless, and the case of a manufacturer who
carelessly manufactures an article which, though not a source of danger to a
subsequent owner or to his other property, nevertheless owing to a hidden
defect quickly disintegrates. To hold that either the builder or the manufacturer
was liable except in contract would be to open up a new field of liability the
extent of which could not, I think, be logically controlled, and since it is
not in my judgment necessary to do so for the purposes of this case, I do not,
more particularly because of the absence of the builder, express an opinion
whether the builder has a higher or lower duty than the manufacturer.
The next
important decision is that of the New Zealand Court of Appeal in Bowen v
Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394. This was another
case of defective foundations. The defendant builders had erected a building
comprising two flats under contract with the first owner who sold it to the
plaintiff. The plaintiff sued the builders for negligence in failing to provide
adequate foundations. The building had settled and cracked. Remedial work was
proposed to be undertaken to prevent further subsidence and to restore the
building as far as possible, but it was impossible to eliminate the sag in the
building so as to restore it fully to its original condition. Speight J had
dismissed the action, saying [1975] 2 NZLR 546 at pp 555-556:
It is a claim
for the diminished value of the article, as for example, if the lady in Donoghue
v Stevenson had sued for damages for inferior quality ginger beer. The
claim for such a defect in the quality of an article purchased is an action in
contract not in tort and privity of contract still remains an essential part of
that concept.
The Court of
Appeal took a different view. Richmond P, although dissenting on the facts,
expressed an opinion on the applicable law with which both Woodhouse and Cooke
JJ agreed. He said, at pp 410-411:
Does
damage to the house itself give rise to a cause of action? As I have already said, I
agree with Speight J that the principles laid down in Donoghue v Stevenson
apply to a builder erecting a house under a contract with the owner. He is
under a duty of care not to create latent sources of physical danger to the
person or property of third persons whom he ought reasonably to foresee as
likely to be affected thereby. If the latent defect causes actual physical
damage to the structure of the house then I can see no reason in principle why
such damage should not give rise to a cause of action, at any rate if that
damage occurs after the house has been purchased from the original owner. This
was clearly the view of Lord Denning MR and of Sachs LJ in Dutton v Bognor
Regis Urban District Council [1972] 1 QB 373, 396, 403-404. In the field of
products liability this has long been the law in the United States: see Prosser’s
Law of Torts, 4th ed, p 665, s 101, and Quackenbush v Ford Motor
Co (1915) 167 App Div 433; 153 NYS 131. For the purposes of the present
case it is not necessary to deal with the question of ‘pure’ economic loss,
that is to say economic loss which is not associated with a latent defect which
causes or threatens physical harm to the structure itself. What is the
correct measure of damages in the present case? As earlier explained, it has not been feasible
in the present case to raise the building in such a way as to get rid of the
sag which has occurred in the structure, and at the same time to strengthen the
subfoundations. The proposed alterations are designed: (a) to reduce the
risk of further subsidence by getting rid of the weight of the concrete block
wall dividing the two units; (b) to restore the appearance of the house
as far as possible; and (c) to put doors and windows into proper working
condition. As to (a), when a defect has actually caused structural
damage to a building it must be proper for the owner not only to repair the
damage but also to take reasonable steps to prevent further damage, rather than
wait for that damage to occur. In some cases this may give rise to the question
whether some credit ought not to be given to the builder for betterment but no
such question arises in the present case. As to (b), I can see no reason
why the Bowens should not be able to claim for the cost of alterations carried
out to improve the appearance of the building in circumstances where it is not
feasible to raise the building in such way as to eliminate the sag in the
structure. Finally, there can, I think, be no question as to (c). These
repairs are obviously necessary . . . . Apart from the actual cost of the
alterations, there is a sum of $2,000 claimed as depreciation or diminution in
value. This sum represents the difference between the market value of the
property after all repairs are done and the market value had there been no
subsidence. This claim, in my opinion, should be allowed. In one sense it can
be described as economic loss, but it is economic loss directly and immediately
connected with the structural damage to the building and as such is properly
recoverable.
Anns v Merton London Borough Council [1978] AC 728 was again a
case of defective foundations, but, like Dutton’s case, one in which the
only defendant was the local authority so that the scope of the builder’s duty
of care and the measure of damages for any breach of that duty were not
directly in issue. Lord Wilberforce, with whose speech Lord Diplock, Lord Simon
of Glaisdale and Lord Russell of Killowen agreed, dealt with the position of
the builder and the damages recoverable in the following passage, at pp
758-760:
The position
of the builder. I agree with the majority in the
Court of Appeal in thinking that it would be unreasonable to impose liability
in respect of defective foundations upon the council, if the builder, whose
primary fault it was, should be immune from liability. So it is necessary to
consider this point, although it does not directly arise in the present appeal.
If there was at one time a supposed rule that the doctrine of Donoghue v
Stevenson [1932] AC 562 did not apply to realty, there is no doubt under
modern authority that a builder of defective premises may be liable in
negligence to persons who thereby suffer injury: see Gallagher v N
McDowell Ltd [1961] NI 26 per Lord MacDermott CJ — a case of personal
injury. Similar decisions have been given in regard to architects — (Clayton
v Woodman & Son (Builders) Ltd [1962] 2 QB 533 and Clay v A
J Crump & Sons Ltd [1964] 1 QB 533). Gallagher’s case expressly
leaves open the question whether the immunity against action of builder owners,
established by older authorities (eg Bottomley v Bannister [1932]
1 KB 458) still survives. That immunity, as I understand it, rests partly upon
a distinction being made between chattels and real property, partly upon the
principle of ‘caveat emptor’ or, in the case where the owner leases the
property, on the proposition ‘for, fraud apart, there is no law against letting
a tumbledown house’: see Robbins v Jones (1863) 15 CBNS 221, 240 per
Erle CJ. But leaving aside such cases as arise between contracting parties,
when the terms of the contract have to be considered (see Voli v Inglewood
Shire Council (1963) 110 CLR 74, 85 per Windeyer J), I am unable to
understand why this principle or proposition should prevent recovery in a
suitable case by a person, who has subsequently acquired the house, upon the
principle of Donoghue v Stevenson: the same rules should apply to
all careless acts of a builder: whether he happens also to own the land or not.
I agree generally with the conclusions of Lord Denning MR on this point in Dutton
v Bognor Regis Urban District Council [1972] 1 QB 373, 392-394. In the
alternative, since it is the duty of the builder (owner or not) to comply with
the byelaws, I would be of opinion that an action could be brought against him,
in effect, for breach of statutory duty by any person for whose benefit or
protection the byelaw was made. So I do not think that there is any basis here
for arguing from a supposed immunity of the builder to immunity of the council.
Nature of
the damages recoverable and arising of the cause of action. There are many questions here which do not directly arise at this
stage and which may never arise if the actions are tried. But some conclusions
are necessary if we are to deal with the issue as to limitation. The damages
recoverable include all those which foreseeably arise from the breach of the
duty of care which, as
compliance with the byelaws. Subject always to adequate proof of causation,
these damages may include damages for personal injury and damage to property.
In my opinion they may also include damage to the dwelling-house itself; for
the whole purpose of the byelaws in requiring foundations to be of a certain
standard is to prevent damage arising from weakness of the foundations which is
certain to endanger the health or safety of occupants. To allow recovery for
such damage to the house follows, in my opinion, from normal principle. If
classification is required, the relevant damage is in my opinion material,
physical damage, and what is recoverable is the amount of expenditure necessary
to restore the dwelling to a condition in which it is no longer a danger to the
health or safety of persons occupying and possibly (depending on the
circumstances) expenses arising from necessary displacement. On the question of
damages generally I have derived much assistance from the judgment (dissenting
on this point, but of strong persuasive force) of Laskin J in the Canadian
Supreme Court case of Rivtow Marine Ltd v Washington Iron Works
[1973] 6 WWR 692, 715 and from the judgments of the New Zealand Court of Appeal
(furnished by courtesy of that court) in Bowen v Paramount Builders
(Hamilton) Ltd and McKay [1975] 2 NZLR 546.
When does
the cause of action arise? We can leave aside cases of personal injury
or damage to other property as presenting no difficulty. It is only the damage
for the house which requires consideration. In my respectful opinion the Court
of Appeal was right when, in Sparham-Souter v Town and Country
Developments (Essex) Ltd [1976] QB 858 it abjured the view that the cause
of action arose immediately upon delivery, ie conveyance of the defective
house. It can only arise when the state of the building is such that there is
present or imminent danger to the health or safety of persons occupying it. We
are not concerned at this stage with any issue relating to remedial action nor
are we called upon to decide upon what the measure of the damages should be;
such questions, possibly very difficult in some cases, will be for the court to
decide.
It is
particularly to be noted that Lord Wilberforce founded his view of the
builder’s liability on the alternative grounds of negligence and breach of
statutory duty and that his opinion as to the nature of the damages recoverable
is strictly applicable to the liability of the local authority, and perhaps
also to the liability of the builder for breach of duty under the byelaws, but
is obiter in relation to the builder’s liability for the common law tort of negligence.
It is, moreover, difficult to understand how a builder’s liability, whatever
its scope, in respect of a dangerous defect in a building can arise only when
there is imminent danger to the health and safety of occupiers. In any event
the last sentence in the passage quoted leaves open the critical question as to
the measure of damages in relation to remedial action.
Batty v Metropolitan Property Realisations Ltd [1978] QB 554, to
which I was a party, is a decision with unusual features. A house had been
built on a site negligently selected by developers and builders acting together
which was so inherently unsafe that, following a predictable landslide, the
house was liable to fall down and was a continuing danger to its occupants and
others. The house had become valueless and represented a danger which could
effectively only be removed by demolition. But the liability in tort of the
developers was held to arise from breach of a duty corresponding to that which
they had assumed to the plaintiffs in contract. This I regard as of no present
relevance. Liability of the builders in tort, however, for the plaintiffs’ loss
of the value of the house is one which I would now question for reasons I will
later explain. My own short extemporary judgment, which treats the issue of the
builder’s liability in damages and the fundamental question raised by Stamp LJ
in Dutton v Bognor Regis Urban District Council [1972] 1 QB 373,
414-415 as settled by the speech of Lord Wilberforce in Anns v Merton
London Borough Council [1978] AC 728, 758-760 was, I now think, unsound.
My Lords, I do
not intend to embark on the daunting task of reviewing the wealth of other,
mostly later, authority which bears, directly or indirectly, on the question
whether the cost of making good defective plaster in the instant case is
irrecoverable as economic loss, which seems to me to be the most important
question for determination in the present appeal. My absentation may seem
pusillanimous, but it stems from a recognition that the authorities, as it
seems to me, speak with such an uncertain voice that, no matter how searching
the analysis to which they are subject, they yield no clear and conclusive
answer. It is more profitable, I believe, to examine the issue in the light of
first principles.
However,
certain authorities are of prime importance and must be considered. The
decision of your Lordships’ House in Junior Books Ltd v Veitchi Co
Ltd [1983] 1 AC 520 has been analysed in many subsequent decisions of the
Court of Appeal. I do not intend to embark on a further such analysis. The
consensus of judicial opinion, with which I concur, seems to be that the
decision of the majority is so far as dependent upon the unique, albeit
non-contractual, relationship between the pursuer and the defender in that case
and the unique scope of the duty of care owed by the defender to the pursuer
arising from that relationship that the decision cannot be regarded as laying
down any principle of general application in the law of tort or delict. The
dissenting speech of Lord Brandon of Oakbrook on the other hand enunciates with
cogency and clarity principles of fundamental importance which are clearly
applicable to determine the scope of the duty of care owed by one party to
another in the absence, as in the instant case, of either any contractual
relationship or any such uniquely proximate relationship as that on which the
decision of the majority in Junior Books was founded. Lord Brandon said,
at p 549:
My Lords, it
appears to me clear beyond doubt that, there being no contractual relationship
between the respondents and the appellants in the present case, the foundation,
and the only foundation, for the existence of a duty of care owed by the
defendants to the pursuers is the principle laid down in the decision of your
Lordships’ House in Donoghue v Stevenson [1932] AC 562. The
actual decision in that case related only to the duty owed by a manufacturer of
goods to their ultimate user or consumer, and can be summarised in this way: a
person who manufactures goods which he intends to be used or consumed by others
is under a duty to exercise such reasonable care in their manufacture as to
ensure that they can be used or consumed in the manner intended without causing
physical damage to persons or their property. While that was the actual
decision in Donoghue v Stevenson, it was based on a much wider
principle embodied in passages in the speech of Lord Atkin, which have been
quoted so often that I do not find it necessary to quote them again here. Put
shortly, that wider principle is that, when a person can or ought to appreciate
that a careless act or omission on his part may result in physical injury to
other persons or their property, he owes a duty to all such persons to exercise
reasonable care to avoid such careless act or omission. It is, however, of
fundamental importance to observe that the duty of care laid down in Donoghue
v Stevenson was based on the existence of a danger of physical injury to
persons or their property. That this is so is clear from the observations made
by Lord Atkin at pp 581-582 with regard to the statements of law of Brett MR in
Heaven v Pender (1883) 11 QBD 503, 509. It has further, until the
present case, never been doubted, so far as I know, that the relevant property
for the purpose of the wider principle on which the decision in Donoghue
v Stevenson was based was property other than the very property which
gave rise to the danger of physical damage concerned.
Later, at pp
550-551, Lord Brandon, having referred to the well-known two-stage test of the
existence of a duty of care propounded by Lord Wilberforce in Anns’
case, at pp 751-752, asked himself, at the second stage, the question ‘whether
there are any considerations which ought, inter alia, to limit the scope of the
duty which exists’. He continued at pp 551-552:
To that
second question I would answer that there are two important considerations
which ought to limit the scope of the duty of care which it is common ground
was owed by the appellants to the respondents on the assumed facts of the
present case. The first consideration is that, in Donoghue v Stevenson
itself and in all the numerous cases in which the principle of that decision
has been applied to different but analogous factual situations, it has always
been either stated expressly, or taken for granted, that an essential
ingredient in the cause of action relied on was the existence of danger, or the
threat of danger, of physical damage to persons or their property, excluding
for this purpose the very piece of property from the defective condition of
which such danger, or threat of danger, arises. To dispense with that essential
ingredient in a cause of action of the kind concerned in the present case
would, in my view, involve a radical departure from long-established authority.
The second consideration is that there is no sound policy reason for
substituting the wider scope of the duty of care put forward for the
respondents for the more restricted scope of such duty put forward by the
appellants. The effect of accepting the respondents’ contention with regard to
the scope of the duty of care involved would be, in substance, to create, as
between two persons who are not in any contractual relationship with each
other, obligations of one of those two persons to the other which are only
really appropriate as between persons who do have such a relationship between
them. In the case of a manufacturer or distributor of goods, the position would
be that he warranted to the ultimate user or consumer of such goods that they
were as well designed, as merchantable and as fit for their contemplated
purpose as the exercise of reasonable care could make them. In the case of
subcontractors such as those concerned in the present case, the position would
be that they warranted to the building
owner that the flooring, when laid, would be as well designed, as free from
defects of any kind and as fit for its contemplated purpose as the exercise of
reasonable care could make it. In my view, the imposition of warranties of this
kind on one person in favour of another, when there is no contractual
relationship between them, is contrary to any sound policy requirement. It is,
I think, just worth while to consider the difficulties which would arise if the
wider scope of the duty of care put forward by the respondents were accepted.
In any case where complaint was made by an ultimate consumer that a product
made by some persons with
quality would the question of defectiveness fall to be decided? In the case of goods bought from a retailer,
it could hardly be the standard prescribed by the contract between the retailer
and the wholesaler, or between the wholesaler and the distributor, or between
the distributor and the manufacturer, for the terms of such contracts would not
even be known to the ultimate buyer. In the case of subcontractors such as the
appellants in the present case, it could hardly be the standard prescribed by
the contract between the subcontractors and the main contractors, for although
the building owner would probably be aware of those terms, he could not, since
he was not a party to such contract, rely on any standard or standards
prescribed in it. It follows that the question by what standard or standards alleged
defects in a product complained of by its ultimate user or consumer are to be
judged remains entirely at large and cannot be given any just or satisfactory
answer.
The reasoning
in these passages receives powerful support from the unanimous decision of the
Supreme Court of the United States of America in East River Steamship
Corporation v Transamerica Delaval Inc (1986) 106 S Ct 2295.
Charterers of supertankers claimed damages from turbine manufacturers resulting
from alleged design and manufacturing defects which caused the supertankers to
malfunction while on the high seas. The court held, inter alia, that
whether
stated in negligence or strict liability, no products-liability claim lies in
admiralty when a commercial party alleges injury only to the product itself
resulting in purely economic loss.
Blackmun J,
delivering the judgment of the court, said, at pp2300-2302:
The intriguing
question whether injury to a product itself may be brought in tort has spawned
a variety of answers. At one end of the spectrum, the case that created the
majority land-based approach, Seely v White Motor Co (1965) 63
Cal2d 9; 45 CalRptr 17; 403 P2d 145 (defective truck), held that preserving a
proper role for the law of warranty precludes imposing tort liability if a defective
product causes purely monetary harm. See also Jones & Laughlin Steel
Corporation v Johns-Manville Sales Corporation, 626 F2d 280, 287 and
n 13 (CA3 1980) (citing cases). At the other end of the spectrum is the
minority land-based approach, whose progenitor, Santor v A and M
Karagheusian, Inc (1965) 44 NJ 52, 66-67; 207 A2d 305, 312-313 (marred
carpeting), held that a manufacturer’s duty to make nondefective products
encompassed injury to the product itself, whether or not the defect created an
unreasonable risk of harm. See also LaCrosse v Schubert (1976) 72
Wis2d 38, 44-45; 240 NW2d 124, 127-128. The courts adopting this approach,
including the majority of the Courts of Appeals sitting in admiralty that have
considered the issue, eg Emerson G M Diesel Inc v Alaskan Enterprise,
732 F2d 1468 (CA9 1984), find that the safety and insurance rationales behind
strict liability apply equally where the losses are purely economic. These
courts reject the Seely approach because they find it arbitrary that economic
losses are recoverable if a plaintiff suffers bodily injury or property damage,
but not if a product injures itself. They also find no inherent difference
between economic loss and personal injury or property damage, because all are
proximately caused by the defendant’s conduct. Further, they believe recovery
for economic loss would not lead to unlimited liability because they think a
manufacturer can predict and insure against product failure. See Emerson G M
Diesel Inc v Alaskan Enterprise, at p 1474. Between the two poles
fall a number of cases that would permit a products-liability action under
certain circumstances when a product injures only itself. These cases attempt
to differentiate between ‘the disappointed users . . . and the endangered ones,’
Russell v Ford Motor Co (1978) 281 Or 587, 595; 575 P2d 1383,
1387, and permit only the latter to sue in tort. The determination has been
said to turn on the nature of the defect, the type of risk, and the manner in
which the injury arose. See Pennsylvania Glass Sand Corporation v Caterpillar
Tractor Co 652 F2d 1165, 1173 (CA3 1981) (relied on by the Court of Appeals
in this case). The Alaska Supreme Court allows a tort action if the defective
product creates a situation potentially dangerous to persons or other property,
and loss occurs as a proximate result of that danger and under dangerous
circumstances. Northern Power & Engineering Corporation v Caterpillar
Tractor Co (1981) 623 P2d 324, 329.
We find the
intermediate and minority land-based positions unsatisfactory. The intermediate
positions, which essentially turn on the degree of risk, are too indeterminate
to enable manufacturers easily to structure their business behaviour. Nor do we
find persuasive a distinction that rests on the manner in which the product is
injured. We realise that the damage may be qualitative, occurring through
gradual deterioration or internal breakage. Or it may be calamitous. Compare Morrow
v New Moon Homes Inc 548 P2d 279 (Alaska 1976), with Cloud v Kit
Manufacturing Co 563 P2d 248, 251 (Alaska 1977). But either way, since by
definition no person or other property is damaged, the resulting loss is purely
economic. Even when harm to the product itself occurs through an abrupt,
accident-like event, the resulting loss due to repair costs, decreased value,
and lost profits is essentially the failure of the purchaser to receive the
benefit of its bargain — traditionally the core concern of contract law. See E
Farnsworth, Contracts (1982), para 12.8, pp 839-840. We also decline to
adopt the minority land-based view espoused by Santor and Emerson. Such
cases raise legitimate questions about the theories behind restricting products
liability, but we believe that the countervailing arguments are more powerful.
The minority view fails to account for the need to keep products liability and
contract law in separate spheres and to maintain a realistic limitation on
damages.
This appears to
undermine the earlier American authorities referred to by Richmond P in the New
Zealand case of Bowen v Paramount Builders (Hamilton) Ltd (1977)
1 NZLR 394, at p 410. The opinion of Lord Brandon of Oakbrook in Junior
Books Ltd v Veitchi Co Ltd [1983] 1 AC 520 and that expressed by the
Supreme Court of the United States of America are entirely in line with the
majority decision of the Supreme Court of Canada in Rivtow Marine Ltd v Washington
Iron Works [1973] 6 WWR 692 that the damages recoverable from the
manufacturer by the hirers of a crane which was found to have a defect which
made it unsafe to use did not include the cost of repairing the defect.
These
principles are easy enough to comprehend and probably not difficult to apply
when the defect complained of is in a chattel supplied complete by a single
manufacturer. If the hidden defect in the chattel is the cause of personal
injury or of damage to property other than the chattel itself, the manufacturer
is liable. But if the hidden defect is discovered before any such damage is
caused, there is no longer any room for the application of the Donoghue
v Stevenson [1932] AC 562 principle. The chattel is now defective in
quality, but is no longer dangerous. It may be valueless or it may be capable
of economic repair. In either case the economic loss is recoverable in contract
by a buyer or hirer of the chattel entitled to the benefit of a relevant
warranty of quality, but is not recoverable in tort by a remote buyer or hirer
of the chattel.
If the same
principle applies in the field of real property to the liability of the builder
of a permanent structure which is dangerously defective, that liability can only
arise if the defect remains hidden until the defective structure causes
personal injury or damage to property other than the structure itself. If the
defect is discovered before any damage is done, the loss sustained by the owner
of the structure, who has to repair or demolish it to avoid a potential source
of danger to third parties, would seem to be purely economic. Thus, if I
acquire a property with a dangerously defective garden wall which is
attributable to the bad workmanship of the original builder, it is difficult to
see any basis in principle on which I can sustain an action in tort against the
builder for the cost of either repairing or demolishing the wall. No physical
damage has been caused. All that has happened is that the defect in the wall has
been discovered in time to prevent damage occurring. I do not find it necessary
for the purpose of deciding the present appeal to express any concluded view as
to how far, if at all, the ratio decidendi of Anns v Merton
London Borough Council [1978] AC 728 involves a departure from this
principle establishing a new cause of action in negligence against a builder
when the only damage alleged to have been suffered by the plaintiff is the
discovery of a defect in the very structure which the builder erected.
My example of
the garden wall, however, is that of a very simple structure. I can see that
more difficult questions may arise in relation to a more complex structure like
a dwelling-house. One view would be that such a structure should be treated in
law as a single indivisible unit. On this basis, if the unit becomes a
potential source of danger when a hitherto hidden defect in construction
manifests itself, the builder, as in the case of the garden wall, should not in
principle be liable for the cost of remedying the defect. It is for this reason
that I now question the result, as against the builder, of the decision in Batty
v Metropolitan Property Realisations Ltd [1978] QB 554.
However, I can
see that it may well be arguable that in the case of complex structures, as
indeed possibly in the case of complex chattels, one element of the structure
should be regarded for the purpose of the application of the principles under
discussion as distinct from another element, so that damage to one part of the
structure caused by a hidden defect in another part may qualify to be treated
as damage to ‘other property,’ and whether the argument should prevail may
depend on the circumstances of the case. It would be unwise and it is
unnecessary for the purpose of deciding the present appeal to attempt to offer
authoritative solutions to these difficult problems in the abstract. I should
wish to hear fuller argument before reaching any conclusion as to how far the
decision of the New Zealand Court of Appeal in Bowen v Paramount
Builders (Hamilton) Ltd should be followed as a matter of English law. I do
not regard Anns v Merton London Borough Council as resolving that
issue.
In the instant
case the only hidden defect was in the plaster. The
other possessions damaged or dirtied by falling plaster; £50’. Once it appeared
that the plaster was loose, any danger of personal injury or of further injury
to other property could have been simply avoided by the timely removal of the
defective plaster. The only function of plaster on walls and ceilings, unless
it is itself elaborately decorative, is to serve as a smooth surface on which
to place decorative paper or paint. Whatever case there may be for treating a
defect in some part of the structure of a building as causing damage to ‘other
property’ when some other part of the building is injuriously affected, as for
example cracking in walls caused by defective foundations, it would seem to me
entirely artificial to treat the plaster as distinct from the decorative
surface placed upon it. Even if it were so treated, the only damage to ‘other
property’ caused by the defective plaster would be the loss of value of the
existing decorations occasioned by the necessity to remove loose plaster which
was in danger of falling. When the loose plaster in flat 37 was first
discovered in 1980, the flat was in any event being redecorated.
It seems to me
clear that the cost of replacing the defective plaster itself, either as
carried out in 1980 or as intended to be carried out in future, was not an item
of damage for which the builder of Chelwood House could possibly be made liable
in negligence under the principle of Donoghue v Stevenson or any
legitimate development of that principle. To make him so liable would be to
impose upon him for the benefit of those with whom he had no contractual
relationship the obligation of one who warranted the quality of the plaster as
regards materials, workmanship and fitness for purpose. I am glad to reach the
conclusion that this is not the law, if only for the reason that a conclusion
to the opposite effect would mean that the courts, in developing the common
law, had gone much farther than the legislature were prepared to go in 1972, after
comprehensive examination of the subject by the Law Commission, in making
builders liable for defects in the quality of their work to all who
subsequently acquire interests in buildings they have erected. The statutory
duty imposed by the Act of 1972 was confined to dwelling-houses and limited to
defects appearing within six years. The common law duty, if it existed, could
not be so confined or so limited. I cannot help feeling that consumer
protection is an area of law where legislation is much better left to the
legislators.
It follows
from these conclusions that, even if Wates themselves had been responsible for
the plaster-work in flat 37, the damages recoverable from them by D & F
Estates would have been a trivial sum and Mr and Mrs Tillman could have
established no claim for damages for disturbance. But, as already indicated,
the Court of Appeal’s primary ground for allowing Wates’ appeal was that they
had properly employed competent subcontractors to do the plaster-work for whose
negligence they were not liable, and it is to this issue that I must now turn.
The submission in support of the appeal was put in three ways which amount, as
it seems to me, to three alternative formulations of what is, in essence, the
same proposition of law. Expressed in summary form the three formulations are:
(i) that Wates were vicariously liable for the negligence of their
subcontractor; (ii) that Wates as main contractors responsible for building
Chelwood House owed a duty to future lessees and occupiers of flats to take
reasonable care that the building should contain no hidden defects of the kind
which might cause injury to persons or property and that this duty could not be
delegated; (iii) that Wates as main contractors owed a duty of care to future
lessees and occupiers of flats to supervise their subcontractors to ensure that
the subcontracted work was not negligently performed so as to cause such
defects.
It is trite
law that the employer of an independent contractor is, in general, not liable
for the negligence or other torts committed by the contractor in the course of
the execution of the work. To this general rule there are certain
well-established exceptions or apparent exceptions. Without enumerating them it
is sufficient to say that it was accepted by Mr Fernyhough QC on behalf of the
present appellants that the instant case could not be accommodated within any
of the recognised and established categories by which the exceptions are
classified. But it has been rightly said that the so-called exceptions
are not true
exceptions (at least so far as the theoretical nature of the employer’s
liability is concerned) for they are dependent upon a finding that the employer
is, himself, in breach of some duty which he personally owes to the plaintiff.
The liability is thus not truly a vicarious liability and is to be
distinguished from the vicarious liability of a master for his servant (see Clerk
& Lindsell on Torts, 15th ed (1982), para 3-37, p 185).
Herein lies Mr
Fernyhough’s real difficulty. If Wates are to be held liable for the negligent
workmanship of their subcontractors (assumed for this purpose to result in
dangerously defective work) it must first be shown that in the circumstances
they had assumed a personal duty to all the world to ensure that Chelwood House
should be free of dangerous effects. This was the assumption upon which the
judge proceeded when he said: ‘The duty of care itself is of course not
delegable.’ Whence does this
non-delegable duty arise? Mr Fernyhough
submits that it is a duty undertaken by any main contractor in the building
industry who contracts to erect an entire building. I cannot agree because I
cannot recognise any legal principle to which such an assumption of duty can be
related. Just as I may employ a building contractor to build me a house, so may
the building contractor, subject to the terms of my contract with him, in turn
employ another to undertake part of the work. If the mere fact of employing a
contractor to undertake building work automatically involved the assumption by
the employer of a duty of care to any person who may be injured by a dangerous
defect in the work caused by the negligence of the contractor, this would
obviously lead to absurd results. If the fact of employing a contractor does
not involve the assumption of any such duty by the employer, then one who has
himself contracted to erect a building assumes no such liability when he
employs an apparently competent independent subcontractor to carry out part of
the work for him. The main contractor may, in the interests of the proper
discharge for his own contractual obligations, exercise a greater or lesser
degree of supervision over the work done by the subcontractor. If in the course
of supervision the main contractor in fact comes to know that the subcontractor’s
work is being done in a defective and foreseeably dangerous way and if he
condones that negligence on the part of the subcontractor, he will no doubt
make himself potentially liable for the consequences as a joint tortfeasor. But
the judge made no finding against Wates of actual knowledge and his finding
that they ‘ought to have known’ what the manufacturer’s instructions were
depended upon and was vitiated by his earlier misdirection that Wates owed a
duty of care to future lessees of Chelwood House flats in relation to their
subcontractor’s work.
Mr Fernyhough
relied on an unreported decision of Judge Edgar Fay QC in Queensway Discount
Warehouses v Graylaw Properties Ltd February 19 1982 and upon the
decision of Judge Sir William Stabb QC in Cynat Products Ltd v Landbuild
(Investment and Property) Ltd [1984] 3 All ER 513. In so far as the former
decision relied on any general principle of law that a main contractor is
liable to a third party who suffers damage from the negligently defective work
done by his subcontractor, I can only say, as already indicated, that I can
find no basis in law to support any such principle. The relevant issue in the
latter case, as in Batty v Metropolitan Property Realisations Ltd
[1978] QB 554 in relation to the liability of the developer defendants, was
whether the defendants’ admitted contractual liability was matched by a
parallel liability in tort. In both cases the issue was of importance only as
bearing upon the liability of insurers to indemnify the defendants. I do not
find authorities directed to that question of any assistance in determining the
scope of the duty of care which one person owes to another entirely
independently of any contractual relationship on the basis of the Donoghue
v Stevenson [1932] AC 562 principle.
More important
is the decision of the New Zealand Court of Appeal in Mount Albert Borough
Council v Johnson [1979] 2 NZLR 234. This was another case of the
purchaser of a flat suffering damage due to the subsidence of a building
erected on inadequate foundations. One of the issues was whether the plaintiff
was entitled to recover damages against the development company which had
employed independent contractors to erect the building. Delivering the judgment
of Somers J and himself, Cooke J said, at pp 240-241:
In the
instant type of case a development company acquires land, subdivides it, and
has homes built on the lots for sale to members of the general public. The
company’s interest is primarily a business one. For that purpose it has
buildings put up which are intended to house people for many years and it makes
extensive and abiding changes in the landscape. It is not a case of a landowner
having a house built for his own occupation initially — as to which we would
say nothing except that Lord Wilberforce’s two-stage approach to duties of care
in Anns may prove of guidance on questions of non-delegable duty also.
There appears to be no authority directly in point on the duty of such a
development company. We would hold that it is a duty to see that
cannot be avoided by delegation to an independent contractor.
As a matter of
social policy this conclusion may be entirely admirable. Indeed, it corresponds
almost precisely to the policy underlying the Law Commission’s recommendations
in para 26 of the report (Law Commission no 40) to which I have already
referred and which was implemented by section 1(1) and (4) of the Act of 1972.
As a matter of legal principle, however, I can discover no basis on which it is
open to the court to embody this policy in the law without the assistance of
the legislature and it is again, in my opinion, a dangerous course for the
common law to embark upon the adoption of novel policies which it sees as
instruments of social justice but to which, unlike the legislature, it is
unable to set carefully defined limitations.
The conclusion
I reach is that Wates were under no liability to the plaintiffs for damage
attributable to the negligence of their plastering sub-contractor in failing to
follow the instructions of the manufacturer of the plaster they were using, but
that in any event such damage could not have included the cost of renewing the
plaster. Accordingly I would dismiss the appeal with costs.
In his speech,
LORD OLIVER OF AYLMERTON said: I have had the advantage of reading in draft the
speech prepared by my noble and learned friend, Lord Bridge of Harwich, and I
agree that the appeal should be dismissed for the reasons which he has given.
In particular, I agree with his conclusion that, quite apart from the question
of Wates’ liability for the negligent performance by their subcontractors of
the duties under the plastering sub-contract, the cost of replacing the
defective plaster would, in any event, be irrecoverable.
It is, I
think, clear that the decision of this House in Anns v Merton London
Borough Council [1978] AC 728 introduced, in relation to the construction
of buildings, an entirely new type of product liability, if not, indeed, an entirely
novel concept of the tort of negligence. What is not clear is the extent of the
liability under this new principle. In the context of the instant appeal, the
key passage from the speech of Lord Wilberforce in that case is that which
commences at p 759, and which has already been quoted by my noble and learned
friend.
A number of
points emerge from this:
1 The damage which gives rise to the action may
be damage to the person or to property on the ordinary Donoghue v Stevenson
principle. But it may be damage to the defective structure itself which has, as
yet, caused no injury either to person or to other property, but has merely
given rise to a risk of injury.
2 There may not even be ‘damage’ to the
structure. It may have been inherently defective and dangerous ab initio
without any deterioration between the original construction and the perception
of risk.
3 The damage to or defect in the structure, if
it is to give rise to a cause of action, must be damage of a particular kind,
ie damage or defect likely to cause injury to health or — possibly — injury to
other property (an extension arising only by implication from the approval by
this House of the decision of the Court of Appeal in Dutton v Bognor
Regis Urban District Council [1972] 1 QB 373).
4 The cause of action so arising does not arise
on delivery of the defective building or on the occurrence of the damage but
upon the damage becoming a ‘present or imminent risk’ to health or (semble) to
property and it is for that risk that compensation is to be awarded.
5 The measure of damage is at large but, by
implication from the approval of the dissenting judgment in the Canadian case
referred to (Rivtow Marine Ltd v Washington Iron Works [1973] 6
WWR 692), it must at least include the cost of averting the danger.
These
propositions involve a number of entirely novel concepts. In the first place,
in no other context has it previously been suggested that a cause of action in
tort arises in English law for the defective manufacture of an article which causes
no injury other than injury to the defective article itself. If I buy a
secondhand car to which there has been fitted a pneumatic tyre which, as a
result of carelessness in manufacture, is dangerously defective and which
bursts, causing injury to me or to the car, no doubt the negligent manufacturer
is liable in tort on the ordinary application of Donoghue v Stevenson.
But if the tyre bursts without causing any injury other than to itself or
if I discover the defect before a burst occurs, I know of no principle upon
which I can claim to recover from the manufacturer in tort the cost of making
good the defect which, in practice, could only be the cost of supplying and
fitting a new tyre. That would be, in effect, to attach to goods a
non-contractual warranty of fitness which would follow the goods into whosoever
hands they came. Such a concept was suggested, obiter, by Lord Denning MR in Dutton’s
case, at p 396, but it was entirely unsupported by any authority and is, in my
opinion, contrary to principle.
The
proposition that damages are recoverable in tort for negligent manufacture when
the only damage sustained is either an initial defect in or subsequent injury
to the very thing that is manufactured is one which is peculiar to the
construction of a building and is, I think, logically explicable only on the
hypothesis suggested by my noble and learned friend, Lord Bridge of Harwich,
that in the case of such a complicated structure the other constituent parts
can be treated as separate items of property distinct from that portion of the
whole which has given rise to the damage — for instance, in Anns’ case,
treating the defective foundations as something distinct from the remainder of
the building. So regarded, this would be no more than the ordinary application
of the Donoghue v Stevenson principle. It is true that in such a
case the damages would include, and in some cases might be restricted to, the
cost of replacing or making good the defective part, but that would be because
such remedial work would be essential to the repair of the property which had
been damaged by it.
But even so
there are anomalies. If that were the correct analysis, then any damage
sustained by the building should ground an action in tort from the moment when
it occurs. But Anns tells us — and, at any rate so far as the local
authority was concerned, this was a ground of decision and not merely obiter —
that the cause of action does not arise until the damage becomes a present or
imminent danger to the safety or health of the occupants and the damages
recoverable are to be measured, not by the cost of repairing the damage which
has been actually caused by the negligence of the builder, but by the (possibly
much more limited) cost of putting the building into a state in which it is no
longer a danger to the health or safety of the occupants.
It has,
therefore, to be recognised that Anns introduced not only a new
principle of a parallel common law duty in a local authority stemming from but
existing alongside its statutory duties and conditioned by the purpose of those
statutory duties, but also an entirely new concept of the tort of negligence in
cases relating to the construction of buildings. The negligent builder is not
answerable for all the reasonably foreseeable consequences of his negligence,
but only for consequences of a particular type. Moreover, the consequence which
triggers the liability is not, in truth, the damage to the building, qua
damage, but the creation of the risk of apprehended damage to the safety of
person or property. Take, for instance, the case of a building carelessly
constructed in a manner which makes it inherently defective ab initio
but where the defect comes to light only as a result, say, of a structural
survey carried out several years later at the instance of a subsequent owner.
What gives rise to the action is then not ‘damage’ in any accepted sense of the
word but the perception of possible but avoidable damage in the future. The
logic of according the owner a remedy at that stage is illustrated by the
dissenting judgment of Laskin J in the Canadian case referred to and it is
this: if the plaintiff had been injured the negligent builder would undoubtedly
have been liable on Donoghue v Stevenson principles. He has not
been injured, but he has been put on notice to an extent sufficient to deprive
himself of any remedy if he is now injured and he therefore suffers, and
suffers only, the immediate economic loss entailed in preventing or avoiding
the injury and the concomitant liability for it of the negligent builder which
his own perception has brought to his attention. It is fair therefore that he
should recover this loss, which is as much due tothe fault of the builder as
would have been the injury if it had occurred. Thus it has to be accepted
either that the damage giving rise to the cause of action is pure economic loss
not consequential upon injury to person or property — a concept not so far
accepted into English law outside the Hedley Byrne type of liability (Hedley
Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465) — or
that there is a new species of the tort of negligence in which the occurrence of
actual damage is no longer the gist of the action but is replaced by the
perception of the risk of damage.
I think that
it has to be accepted that this involves an entirely new concept of the common
law tort of negligence in relation to building cases. Its ambit remains,
however, uncertain. So far as Anns’ case was concerned with liability
arising from breach of statutory duty, the liability of the builder was a
matter of direct decision. No argument was advanced on behalf of the builder in
that case, but it
liability of the local authority that there was a precisely parallel and
co-existing liability in the builder. Moreover, it is, I think, now entirely
clear that the vendor of a defective building who is also the builder enjoys no
immunity from the ordinary consequences of his negligence in the course of
constructing the building, but beyond this and so far as the case was concerned
with the extent of or limitations on his liability for common law negligence
divorced from statutory duty, Lord Wilberforce’s observations were, I think,
strictly obiter.
My Lords, so
far as they concern such liability in respect of damage which has actually been
caused by the defective structure other than by direct physical damage to
persons or to other property, I am bound to say that, with the greatest respect
to their source, I find them difficult to reconcile with any conventional
analysis of the underlying basis of liability in tort for negligence. A cause
of action in negligence at common law which arises only when the sole damage is
the mere existence of the defect giving rise to the possibility of damage in
the future, which crystallises only when that damage is imminent, and the
damages for which are measured, not by the full amount of the loss attributable
to the defect but by the cost of remedying it only to the extent necessary to
avert a risk of physical injury, is a novel concept. Regarded as a cause of
action arising not from common law negligence but from breach of a statutory
duty, there is a logic in so limiting it as to conform with the purpose for
which the statutory duty was imposed, that is to say, the protection of the
public from injury to health or safety. But there is, on that footing, no logic
in extending liability for a breach of statutory duty to cases where the risk
of injury is a risk of injury to property only, nor, as it seems to me, is
there any logic in importing into a pure common law claim in negligence against
a builder the limitations which are directly related only to breach of a
particular statutory duty. For my part, therefore, I think the correct
analysis, in principle, to be simply that, in a case where no question of
breach of statutory duty arises, the builder of a house or other structure is
liable at common law for negligence only where actual damage, either to person
or to property, results from carelessness on his part in the course of
construction. That the liability should embrace damage to the defective article
itself is, of course, an anomaly which distinguishes it from liability for the
manufacture of a defective chattel, but it can, I think, be accounted for on
the basis which my noble and learned friend, Lord Bridge of Harwich, suggested,
namely that, in the case of a complex structure such as a building, individual
parts of the building fall to be treated as separate and distinct items of
property. On that footing, damage caused to other parts of the building from,
for instance, defective foundations or defective steel-work would ground an
action but not damage to the defective part itself except in so far as that
part caused other damage, when the damages would include the cost of repair to
that part so far as necessary to remedy damage caused to other parts. Thus, to
remedy cracking in walls and ceilings caused by defective foundations
necessarily involves repairing or replacing the foundations themselves. But, as
in the instant case, damage to plaster caused simply by defective fixing of the
plaster itself would ground no cause of action apart from contract or under the
Defective Premises Act 1972. On what basis and apart from statute is a builder,
in contradistinction to the manufacturer of a chattel, to be made liable beyond
this? There is, so far as I am aware,
and apart from Dutton v Bognor Regis Urban District Council
[1972] 1 QB 373 no English authority prior to Anns v Merton London
Borough Council [1978] AC 728 supporting or even suggesting such a
liability. Dutton’s case was followed by the Court of Appeal in New
Zealand in Bowen v Paramount Builders (Hamilton) Ltd [1977] 1
NZLR 394, where Richmond P, at p 410, defined the builder’s duty as:
a duty of
care not to create latent sources of physical danger to the person or property
of third persons whom he ought reasonably to foresee as likely to be affected
thereby.
He could see
no reason why ‘if the latent defect causes actual physical damage to the
structure of the house’ such damage should not give rise to a cause of action.
In so holding, the court was clearly influenced by certain United States
decisions whose authority has now been much reduced if not destroyed by the
Supreme Court decision in East River Steamship Corporation v Transamerica
Delaval Inc 106 S Ct 2295 referred to by my noble and learned friend. The
measure of damage in Bowen’s case went a great deal beyond that suggested in
Anns, for it not only covered the cost of putting the building into a state in
which it was no longer dangerous to health or safety but extended to the restoration
of its aesthetic appearance and depreciation in value. This really suggests
what is, in effect, a transmissible warranty of fitness and, for the reasons
already mentioned, I do not for my part think that Bowen’s case can be
supported as an accurate reflection of the law of England. Rivtow Marine Ltd
v Washington Ironworks (1973) 6 WWR 692, the dissenting judgment in
which was, to some extent, relied upon by Lord Wilberforce in Anns, does not, I
think, really assist very much. It is true that it was there held by the
majority of the Supreme Court of Canada that the manufacturers and the supplier
of defective equipment were liable for the economic loss suffered by the
plaintiff as a result of the defective equipment having to be taken out of
service, but the basis for the decision was the doctrine of reliance
established by Hedley Byrne which placed upon the defendants a duty to
warn of defects of which they were aware. Even on this basis, however, the
damages did not extend to the cost of repairing the defective article itself.
Since Anns’
case there have, of course, been the decision of the Court of Appeal in Batty
v Metropolitan Realisations Ltd [1978] 1 QB 554 and the decision of this
House in Junior Books Ltd v Veitchi Co Ltd [1983] AC 520. I do
not, for my part, think that the latter is of any help in the present context.
As my noble and learned friend, Lord Bridge of Harwich, has mentioned, it
depends upon so close and unique a relationship with the plaintiff that it is
really of no use as an authority on the general duty of care and it rests, in
any event, upon the Hedley Byrne doctrine of reliance. So far as the
general limits of the general duty of care in negligence are concerned, I, too,
respectfully adopt what is said in the dissenting speech in that case of Lord
Brandon of Oakbrook.
Batty v Metropolitan Realisations Ltd, however, is directly in
point and it needs to be carefully considered because it is, in my opinion,
equally difficult to reconcile with any previously accepted concept of the tort
of negligence. The defendant builder in that case had previously owned the land
on which the plaintiffs’ house was built and was working in close conjunction
with the plaintiffs’ vendor, who had bought the land from him. Thus the
plaintiffs had a contractual relationship with the vendor, but none with the
builder.
There was no
negligence in the construction of the house as such, nor was there any breach
of statutory duty, nor had any damage yet occurred to the house. The negligence
consisted solely in not appreciating what the builder ought reasonably to have
appreciated, that is to say, that the immediately adjacent land was in such a
condition that it would ultimately bring about the subsidence of the
plaintiffs’ land and the consequent destruction of anything built upon it. At
the date of the action and of the hearing no actual damage had been occasioned
to the house. All that had happened was that a part of the garden had subsided,
that being the event which alerted the plaintiffs to the danger which threatened
the house. That, however, was not an event in any way attributable to fault on
anyone’s part but merely to the natural condition of the adjoining land. So
that although there had been physical damage to the garden, it was not physical
damage caused by any neglect on the part of the builder. The case is thus, on
analysis, one in which the claim was for damages for pure economic loss caused
by the putting on to the market of a product which, because defective, would
become a danger to health and safety and thus of less value than it was
supposed to be. It is not specified in the report of the case how the damages
of £13,000 were calculated, but it seems that that sum must have been based on
the difference between the market value of the house (which was doomed to
destruction and therefore valueless) and the value of an equivalent house built
on land not subject to landslips.
Thus what the
plaintiffs obtained from the builder by way of damages in tort was the sum for
which the builder would have been liable if they had given an express
contractual warranty of fitness–a sum related directly not to averting the
danger created by the builder’s negligence but to the replacement of an asset
which, by reason of the danger, had lost its value. The decision in Batty’s
case was based upon Anns’ case, but in fact went one step further
because there was not in fact any physical damage resulting from the builder’s
negligence, although Megaw LJ, at p 571, appears to have considered that what
mattered was the occurrence of physical damage to some property of the
plaintiffs, however caused. As in Anns, the cause of action was related
not to damage actually caused by the negligent act but to the creation of the
danger of damage, and the case is therefore direct authority for the recovery
of damages in negligence for pure economic loss–a proposition now firmly
established in New Zealand (see Mount Albert Borough Council v Johnson
[1979] 2 NZLR 234).
My Lords, I
confess to the greatest difficulty in reconciling this with any previously
accepted concept of the tort of negligence at common law and I share the doubt
expressed by my noble and learned friend, Lord Bridge of Harwich, whether it
was correctly decided, at any rate so far as the liability of the builder was
concerned. The case was, however, one in which the builder and the developer,
with whom the plaintiffs had directly contractual relationship, were,
throughout, acting closely in concert and it may be that the actual decision,
although not argued on this ground, can be justified by reference to the
principle of reliance established by the decision of this House in Hedley
Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.
My Lords, I
have to confess that the underlying logical basis for and the boundaries of the
doctrine emerging from Anns v Merton London Borough Council
[1978] AC 728 are not entirely clear to me and it is in any event unnecessary
for the purposes of the instant appeal to attempt a definitive exposition. This
much at least seems clear: that in so far as the case is authority for the
proposition that a builder responsible for the construction of the building is
liable in tort at common law for damage occurring through his negligence to the
very thing which he has constructed, such liability is limited directly to
cases where the defect is one which threatens the health or safety of occupants
or of third parties and (possibly) other property. In such a case, however, the
damages recoverable are limited to expenses necessarily incurred in averting
that danger. The case cannot, in my opinion, properly be adapted to support the
recovery of damages for pure economic loss going beyond that, and for the
reasons given by my noble and learned friend, with whose analysis I
respectfully agree, such loss is not in principle recoverable in tort unless
the case can be brought within the principle of reliance established by Hedley
Byrne. In the instant case the defective plaster caused no damage to the
remainder of the building and in so far as it presented a risk of damage to
other property or to the person of any occupant that was remediable simply by
the process of removal. I agree, accordingly, for the reasons which my noble
and learned friend has given, that the cost of replacing the defective plaster
is not an item for which the builder can be held liable in negligence. I, too,
would dismiss the appeal.
LORDS
TEMPLEMAN, ACKNER and JAUNCEY of TULLICHETTLE
agreed with the speeches of Lord Bridge of Harwich and Lord Oliver of Aylmerton
and did not add anything.
For further
cases on this subject see p 171
