by John Murdoch
Of all those readers of Estates Gazette who are involved in construction, even in the widest sense, there can surely be very few who remain unaware of the momentous legal developments which took place during the summer. In the case of Murphy v Brentwood District Council [0] 2 All ER 908, the House of Lords, which has over the past few years become increasingly vociferous in its criticisms of Anns v Merton London Borough Council [1978] AC 728; (1977) 243 EG 523 & 591, has finally taken the bull by the horns and declared its earlier decision to be altogether wrong. This overruling (which also embraces Dutton v Bognor Regis Urban District Council [1972] 1 QB 373 and all the many cases since decided on the basis of Dutton and Anns) represents a drastic cutback in the legal remedies available to the owners and occupiers of defective buildings.
It appears likely that, as a result of the ruling in Murphy, the flood of negligence actions brought during the past 20 years against builders, architects, consulting engineers and local authorities will rapidly dry to no more than a trickle. None the less, it will come as no surprise to connoisseurs of the decisions handed down by the House of Lords in building cases to learn that their latest effort leaves many areas of doubt, with unanswered questions which will surely provoke litigation over the next few years. The purpose of this article is accordingly to consider just what it is that Murphy has decided and, even more important perhaps, what it has not decided.
The background
Once upon a time, when the tentacles of caveat emptor spread even further than they do today, the law drew some basic distinctions between the manufacturer of a product and the builder of a house. As a result of Donoghue v Stevenson [2] AC 562, the manufacturer could of course be liable for negligence to the “consumer” of his product, notwithstanding the absence of any contract between them. However, while this form of liability could also be imposed upon a “mere” builder, it did not apply to an owner-builder; the latter’s immunity as vendor of the building overrode his liability as its creator, with the result that he was not even liable for defects in the building which subsequently injured people.
Although much criticised, this refusal to apply Donoghue v Stevenson to owner-builders survived until 1972, when Dutton v Bognor Regis UDC [2] 1 QB 373 reached the Court of Appeal. The ruling in that case duly destroyed the owner-builder’s immunity, but it also did more, by holding that the owner-builder could be made liable in tort for defects in the building itself. Furthermore (which was of course what was in issue in the actual case), it was held that a local authority could be liable in negligence for failing to prevent the building of a defective property.
A few years later, in Anns v Merton LBC [8] AC 728, the Dutton principle was approved by the House of Lords, albeit with the refinement that neither builder nor local authority were answerable in tort for all defects, but only those which created a present or imminent danger to the health and safety of the occupier or others.
The Murphy case
Although it was initially received with some enthusiasm, the Anns principle soon began to bear the brunt of some heavy criticism, partly because it appeared inconsistent with the general principle that the tort of negligence does not compensate for purely financial losses, and partly because it turned on the difficult and elusive distinction between a “defect” and a “danger”. Furthermore, since it was always accepted that a local authority should be under no greater a liability than was the builder (for it was after all the builder’s initial breach of duty which caused the problem), the substantial cutting back on claims against builders by the House of Lords in D & F Estates Ltd v Church Commissioners [9] AC 177; [1988] 2 EGLR 263 raised serious questions about the continuing status of Anns.
As everyone now knows, the case of Murphy v Brentwood DC forced the House of Lords to confront these questions head-on, and a court of seven judges (presumably meant to give added weight to the decision) duly reached the conclusion that the previous decision could no longer stand.
The House of Lords’ U-turn is remarkable, which is more than can be said for the dispute which provided their lordships with the opportunity to make it. The murphy case arose because the plaintiff had, in 1970, purchased a house in Brentwood from a company which had built it over filled ground on a concrete-raft foundation. The design of the foundation had been submitted to the defendant local authority for approval and the defendants, having taken advice from a firm of consulting engineers, duly approved it. In the early 1980s, after serious cracks had begun to appear in internal walls, an investigation revealed that the concrete raft had been subject to differential settlement; this later led to the cracking of both gas and soil pipes, a matter which the courts were subsequently to regard as constituting a danger to health and safety. The plaintiff in 1986 sold the house (which should have been worth £65,000) for £30,000 and his insurance company, which had paid him £35,000 for subsidence damage, began an action in his name against the local authority.
The trial judge and the Court of Appeal held that, since the local authority was responsible in law for the negligence of the consulting engineers, the plaintiff was entitled to recover damages. These would normally be based on what it would cost to make the house safe, but in this case the plaintiff was entitled to the lesser sum of £35,000 which represented his loss on the sale. On a further appeal to the House of Lords, the decision of the lower courts was reversed; as already mentioned, the Anns principle was declared to be wrong and, in consequence, there was no legal basis on which the local authority could be held responsible.
The present position
Although the immediate concern of the House of Lords in Murphy was thus whether a local authority could be liable in negligence to the second or subsequent owner of a house in their area which turned out to be defectively constructed, the implications of the decision are important over a much wider area. Indeed, a remarkable feature of the case is that their lordships devoted more time and space to considerations of a builder’s liability than to the position of the local authority which fails to deter that builder from building badly. In an attempt to unravel the complexities of the ruling and to see what pointers it provides for the future, we shall accordingly consider separately the obligations of local authorities, builders, designers and subcontractors; further, we must distinguish between the legal rights of the first owner of a defective property and those of a second or subsequent owner.
a) Local authorities
(i) Subsequent owners
Whatever else it may or may not have decided, Murphy clearly lays down that a local authority, in exercising their building control functions (passing plans, inspecting buildings in the course of construction etc), owe no duty of care to future owners or occupiers of a house or other building to safeguard them against the financial losses which may result from the condition of the property. It matters not that the house may be dangerous, rather than merely defective, the cost of making it safe is a purely economic loss, and the relationship between these parties is not sufficiently “proximate” to support a duty of care in respect of it.
The vast majority of the cases which have hitherto been brought against local authorities fall into this category, and so Murphy represents a significant victory for them (and their insurers). None the less, there remains one area of doubt, namely whether a local authority can be held liable if a defect in a building which their negligence has failed to prevent actually causes physical injury to someone or physical damage to other property (eg where a garage roof falls in on the house-owner’s car). Counsel for the defendants in the Murphy case in fact conceded that a local authority would owe a legal duty to prevent such forms of damage but, surprisingly perhaps, no fewer than three members of the House of Lords expressly stated that this point must await decision in some future case.
(ii) First owner
The general trend in the case law between Anns and Murphy (most clearly exemplified by the House of Lords in Peabody Donation Fund Governors v Sir Lindsay Parkinson & Co Ltd [5] AC 210) has been to treat the claims of the first owner of a house (ie the person who actually builds it or has it built) as significantly weaker than those of his successors. This is because such a person will by definition himself be in breach of the building regulations, and the courts have not taken kindly to an argument along the lines: “You should have prevented me from breaking the law and thereby incurring financial loss”. None the less, it was recognized by the Court of Appeal in Richardson v West Lindsey District Council [1990] 1 All ER 296 that there could be exceptional cases in which a “do it yourself” house-builder might reasonably regard the local authority’s approval of his plans and/or work as amounting to some kind of assurance that these would cause no danger to his health or safety.
It is tempting to assume that the exceptional cases recognized in Richardson have simply been swept into oblivion along with Anns, especially in the light of their lordships’ insistence that it would not be “just and reasonable” to make a local authority liable where the builder himself would not be. None the less, it is at least possible that such a conclusion might be premature, and that the local authority might incur responsibility on a quite separate basis. As we shall see in relation to other categories of defendant, the House of Lords has left the door open to claims where there is a relationship of close “proximity” between the parties, and especially where one of them reasonably relies on the other to do his job properly. And, since it was precisely this concept of “reliance” which the Court of Appeal used in Richardson to define its “exceptional cases”, this type of claim may yet have some mileage in it.
b) Builders
(i) Subsequent owners
As mentioned earlier, the House of Lords in Murphy devoted considerable time to a discussion of what, if any, liability there could be for a negligent builder in the aftermath of D & F Estates Ltd v Church Commissioners. Continuing in the highly restrictive vein of their earlier decision, their lordships made it clear that a builder (or, for that matter, the manufacturer of a product) cannot be held responsible in tort to a “remote owner” for the cost of putting right defects, even dangerous ones, in the property which he has acquired.
The crucial point in the reasoning of all the judges is that, once a defect is discovered in property, the person who owns the property at the time has the choice of repairing it (at his own expense), abandoning it (and thus wasting what he has paid for it) or continuing to use it (in which case he and not the builder/manufacturer will be liable to anyone who gets injured by it). Thus, whichever choice he makes, the owner’s loss is properly categorised as “pure economic loss” and, as Lord Oliver succinctly pointed out: “The infliction of physical injury to the person or property of another universally requires to be justified. The causing of economic loss does not. If it is to be categorised as wrongful it is necessary to find some factor beyond the mere occurrence of the loss and the fact that its occurrence could be foreseen.”
As to whether anything in the “relationship” between a builder and a future owner would justify the creation of a duty of care, the court was in no doubt. “Transmissible warranties” and other such consumer protection measures were best left to Parliament to provide, and none had been enacted in this area. Indeed, the House of Lords believed strongly that it would be wholly wrong for it in effect to create a form of liability at common law which would go far beyond what Parliament had seen fit to lay down in the Defective Premises Act 1972.
To this blanket denial of liability there is, it appears, only one possible exception, and even that is highly dubious. It was suggested by Lord Bridge (although doubted by Lord Oliver) that an owner who found himself saddled with a building which was dangerous to neighbours might be able to claim in negligence against the original builder. The reasoning here is that the owner is faced with a potential liability which he cannot avoid simply by not using the property; however, it is in truth difficult to see how this makes his loss any less “economic” than in other cases.
Having thus closed the door with a resounding crash on any attempt to sue builders in tort for defects on the ground that they are dangerous, the House of Lords also put paid to the “complex structure” loophole which had been left slightly open by the D & F Estates case. The possibility of arguing that different parts of the same building might be treated as separate, and that damage to, say, the walls caused by defective foundations might be treated as “physical damage to other property”, was derided by several of their lordships, and not least by those who had mooted it on the earlier occasion. As a result (at least so far as the position of the main contractor is concerned) this route appears completely blocked.
The net result of Murphy, therefore, is that a negligent builder is completely free of liability for any kind of damage to the building itself. Indeed it could be argued that the overruling of Dutton and Anns returns the common law to its former state, in which an owner-builder’s immunity under caveat emptor even protected him against claims for personal injury! However, it seems inconceivable that this extreme view would find favour with judges and, in any event, it is probably ruled out (give or take some difficulties of interpretation) by section 3 of the Defective Premises Act 1972. If this is correct, it means that a builder will henceforth be liable for physical injury or damage to other property to the same extent as a manufacturer, in accordance with the principle of Donoghue v Stevenson.
(ii) First owner
The House of Lords in Murphy had nothing specific to say about the right of the first owner of a house or other building to claim against the builder in respect of defects. However, provided that there is a sufficiently “proximate” relationship between them (and the fact that they are actually joined by a contract must be a good start in establishing this), then there seems no reason why a claim should not be made. After all, their lordships appear to have accepted that designers and subcontractors can be liable where the client has relied on them, and it is difficult to see why the builder should be in a different position. Indeed, Lord Bridge seemed explicitly to accept that this could be so.
At the same time, it should not be forgotten that the courts will not usually recognise a duty of care in tort between contracting parties, in circumstances where those parties have clearly chosen not to create such a duty in their contract. Nor, where this is not the case, will a tort claim be permitted to outflank defences to a claim for breach of contract (with the single exception that a tort claim will be allowed where a contract claim has been barred by time), and this may cause problems where the client’s right to claim under the contract has been barred in some other way, for example by the issue of the architect’s final certificate.
c) Designers
(i) Subsequent owners
This particular category of claim can be very briefly disposed of. There is nothing in Murphy to suggest that, where persons other than the first owner of property are concerned, the responsibility of the designer in any way exceeds that of the builder. Thus, what was said above in relation to the builder is equally applicable here.
(ii)First owner
When, in denying the builder’s liability for defects, the House of Lords categorised the house-owner’s loss as purely economic, it did not suggest that such losses are never actionable under the tort of negligence, but rather that this is so only where there is some special relationship between the parties. Referring with approval to the principle enshrined in Hedley Byrne & Co Ltd v Heller & Partners Ltd [4] AC 465, their lordships clearly felt that the essence of such a relationship would lie in the concept of “reliance”, for example the reliance placed by a client upon the advice which he receives from a professional adviser.
It was on this basis that Lord Keith explained the earlier decision in Pirelli General Cable Works Ltd v Oscar Faber & Partners [3] 2 AC 1; (1983) 263 EG 979, and stated his opinion that a designer (such as an architect or, as in that case, a consulting engineer) would indeed be liable in tort to his client for the pure economic loss suffered by building in accordance with his advice. As a result (and contrary to what was actually said in Pirelli itself), Lord Keith reached the conclusion that a professional designer could be sued even for defects which did not cause any physical damage at all, but which simply resulted in a depreciation in the building’s value. Worrying news indeed for architects and engineers and, while a passing remark of one judge out of seven might sometimes be overlooked, it should not be forgotten that the other six all expressed their agreement with Lord Keith’s speech.
d) Subcontractors
(i) Subsequent owners
One of the more worrying (and odd) aspects of the speeches in Murphy is undoubtedly their treatment of subcontractors. While rejecting, as we noted earlier, the “complex structure” argument as a means of imposing liability upon builders, the House of Lords has given clear approval to it as regards subcontractors. Both Lord Keith and Lord Bridge (with whose speeches all the other judges claimed to agree) thought that if, say, defective wiring causes a fire which damages the rest of the building, the electrical subcontractor will be liable in tort to the building owner by a straightforward application of the principle of Donoghue v Stevenson.
While this may well appear logical (and, whether it is or not, it seems inevitable that, in the short term at least, subcontractors are destined to replace local authorities as everyone’s favourite defendant), it is open to serious criticism. If, as the judges insisted, the liability of a builder in negligence is now identical to that of a manufacturer, it would seem to follow that a component manufacturer (the equivalent of a subcontractor) can be sued if a defect in his component causes damage to the remainder of the product. Since, however, this form of liability is specifically ruled out by the Consumer Protection Act 1987, is it not fair to ask what has happened to the House of Lord’s insistence (based on the Defective Premises Act 1972) that the common law should not create liability in excess of that which is specifically provided by statute in the same area?
(ii) First owner
If, notwithstanding the argument that it undermines the statutory position, a subcontractor can indeed be liable to subsequent owners of property on the basis outlined above, there seems no reason why the first owner should not also be able to claim on the same basis. Moreover, the first owner may well have an additional ground of claim, in the light of remarks made by two of their lordships (remarks which appear to breathe new life into a previous decision long regarded as dead and buried). In pointing out that a claim in the tort of negligence for pure economic loss is permissible where there is a relationship of sufficient proximity between the parties, both Lord Keith and Lord Bridge referred without any apparent disapproval to the case of Junior Books Ltd v Veitchi Co Ltd [3] 1 AC 520 (in which a nominated subcontractor was held liable in negligence to the building owner for defective work), and in fact used it as an illustration of just such a relationship.
If this really is so, then it will require a major shift in thinking on the part of both subcontractors and their legal advisers. Junior Books has hitherto been regarded as something of an aberration, a “one off” decision of the House of Lords which could safely be ignored (indeed a Court of Appeal judge has described it as not worth citing!). If it is now to be rehabilitated, what must be appreciated is that its facts are in no way exceptional, the crucial factors of “reliance” by the employer on the subcontractor’s ability to do the work properly, and the subcontractor’s knowledge of such reliance, seem nothing more than will be present in every case where a subcontractor is chosen by the employer (whether or not under an express system of “nomination”). As a result, it appears that, save where it would be inconsistent with an express collateral warranty agreement between employer and nominated subcontractor (as was held to be the case in Greater Nottingham Cooperative Society Ltd v Cementation Piling & Foundations Ltd [8] 2 All ER 971), the shade of Junior Books is back to haunt the construction industry!
Conclusions
The foregoing discussion should serve to show that, notwithstanding the publicity which it has received, the decision in Murphy v Brentwood DC has by no means ruled out altogether tort claims for negligence in respect of defective buildings. None the less, the precise extent of what remains is far from clear, and it will probably take another decade of litigation to explore the various possibilities described.
What is clear beyond any real doubt is that, in the aftermath of Murphy, the unfortunate owners and occupiers of defective buildings have even less legal protection than they had previously, and it may be that this will ultimately lead to the introduction of compulsory project-based insurance to provide an effective compensation fund. In the meantime, it seems inevitable that the decision will provoke even greater insistence, in the commercial sector at least, upon the execution of collateral warranties, which, as anyone who has had occasion to deal with them will know, create enormous legal and practical problems.
