English law
has persistently refused to award damages for negligence which causes ‘pure
economic loss’. The fact that a plaintiff has lost money is of course no bar to
an action — indeed it is precisely because he has lost money that the
average plaintiff goes to court in the first place — but the person whose only
loss is a financial one has usually found that the tort of negligence will not
help him.
There are, it
is true, some exceptions. Most notably, a negligent statement which is
relied on by the plaintiff to his financial detriment may be actionable as a
tort (Hedley Byrne & Co Ltd v Heller & Partners Ltd
[1964] AC 465). However, when one considers liability for negligent acts, the
cases in which recovery has been permitted for pure economic loss appear highly
exceptional and controversial. The decision of the House of Lords in Junior
Books Ltd v Veitchi Co Ltd [1983] 1 AC 520, for example, came out of
the blue and shook the entire legal profession. As readers will no doubt
remember, that case held that a nominated sub-contractor who negligently
breached his sub-contract by laying a defective floor could be liable in tort
to the client of the main contractor, even though the building, as a result of
his breach, was merely defective and not dangerous.
Notwithstanding
that Junior Books was a decision of the House of Lords, it has been
treated with scant respect by subsequent courts. Distinguished in virtually
every case in which it has been cited, it already appeared to have been
confined to its own special field of builders and subcontractors. And now, if a
recent decision of the Court of Appeal is to be believed, it seems that Junior
Books is of little practical importance even in that limited arena.
Simaan
General Contracting Co v Pilkington Glass Ltd
(No 2) (1988) 138 NIJ 53 concerned the construction of a large building in Abu
Dhabi, the plaintiffs being the main contractors. The supply and erection of
curtain walling was subcontracted to an Italian company, which was required by
the terms of the sub-contract to obtain the specified double-glazed units of
green glass from the defendants. When erected, the glass was found not to be of
a uniform colour, and the clients refused to pay the plaintiffs until it was
removed and replaced. The delay in payment caused financial loss to the
plaintiffs and, for reasons which are not clear, they sought to recover this
directly from the defendants by suing in the tort of negligence (rather than by
claiming from the sub-contractors in contract). An Official Referee held, as a
preliminary point, that the defendants owed the plaintiffs a duty of care not
to cause them loss of this kind, whereupon the defendants appealed.
In
delivering the only reported judgment, Bingham LJ noted first that the
two-stage test laid down in Anns v Merton LBC [1977] 2 EGLR 94
for finding a duty of care (which was heavily relied upon in Junior Books)
has come under fire in later cases. He then pointed out that, while economic
loss can sometimes found an action in negligence (eg under Hedley Byrne),
there is demonstrably no general principle that it will do so. Accordingly, Junior
Books itself could apply only in a limited area, and his lordship had no
difficulty in deciding that the present case lay well outside it. The
plaintiffs here could not be said to have relied on the defendants (in the
sense in which the client might have done so); the only reason why they
required the sub-contractors to buy from the defendants was that they in turn
were so obliged by their contract. While it might be argued on the basis of Junior
Books (and clearly the judge was unenthusiastic even about this) that the
defendants might assume a direct responsibility to the client for the
quality of their products, there was no basis whatsoever for saying that they
had assumed a similar responsibility to the plaintiffs.
These
arguments alone would have disposed of the case, but further points were made
which strike at the very roots of Junior Books, since they would apply
with equal force to a claim by a client. In holding that it would not be just
and reasonable to impose a duty of care on the defendants, Bingham LJ pointed
out that such a duty was both unnecessary (since it was quite feasible to
pursue legal remedies along the chain of contracts) and undesirable (since it
might serve to leapfrog any perfectly valid exemption or limitation clauses
contained in the contract under which goods were supplied).
tenants’ associations
The
legislation controlling service charge provisions in the private rented sector
gives a significant role to ‘recognised tenants’ associations’. By virtue of
section 20 of the Landlord and Tenant Act 1985, wherever the relevant costs
incurred exceed the greater of either £500 or £25 multiplied by the number of
flats in the building, the landlord is obliged to engage in a consultation
procedure. Where there is a recognised tenants’ association, the landlord must
serve on the secretary a notice describing the proposed works and a copy of at
least two estimates. The association must be given at least one month in which
to make observations and the landlord must have regard to these. The secretary
of the association can also, with the consent of the tenant, require the
landlord to provide a written summary of costs incurred under section 21 of the
1985 Act. Once the service charge provisions of the 1985 Act are amended by
Part V of the Landlord and Tenant Act 1987 (on a date yet to be fixed), the
role of the recognised tenants’ association will be further extended, since
such associations must then be consulted not only in respect of proposed works
but also in respect of the appointment of a managing agent (see section 44 of
the 1987 Act, which will introduce a new section 30B into the 1985 Act).
A recognised
tenants’ association is defined by section 29(1) of the 1985 Act as one ‘which
is recognised for the purposes of the provisions of this Act relating to service
charges either — (a) by notice in writing given by the landlord to the
secretary of the association, or (b) by a certificate of a member of the local
rent assessment committee panel.’ This
provision has recently been considered in the High Court and the outcome may
well cause some rapid rethinking.
In R
v London Rent Assessment Panel, ex parte Trustees of Henry Smith’s Charity
Estate [1988] 03 EG 96 the landlords were seeking to quash a certificate
according recognition to a tenants’ association issued by the president of the
London Rent Assessment Panel under section 29(1)(b). The landlords had
converted a row of terraced houses so as to form five ‘blocks’ of flats. The
tenants’ association to which recognition had been given was made up of members
from each of these five blocks; the landlords were seeking to challenge the
certificate of recognition on the basis that the only tenants’ associations
which can be recognised for the purposes of the Act are those whose membership
is confined to the tenants of a single block.
It was clear
from the evidence provided by the president of the London Rent Assessment Panel
that, on a number of previous occasions, recognition had been granted ‘where an
estate consisted of a number of separate and independent blocks for which one
association had been formed.’ Schiemann
J had no doubt that such a practice was not sustainable in the circumstances of
the case before him.
He was quite
satisfied that the scheme of the 1985 Act was designed to give tenants certain
rights in respect of charges made in relation to the building in which their
own flat is situated. They have no rights in respect of charges levied on
tenants in other blocks. Indeed, the president of the London Rent Assessment
Panel clearly recognised this position by insisting that the constitution of
any tenants’ association must limit the voting rights on estimates to those
tenants directly affected. Nevertheless, the judge was of the view that a
tenants’ association has no greater rights than the tenants themselves and that
the term ‘building’ (used in section 29) could not be extended to permit the
formation of a tenants’ association covering all five ‘blocks’.
The natural
outcome is that the tenants now have to form five separate tenants’
associations in order to qualify for a certificate of recognition. While this
may appear to be bureaucracy gone mad, it has to be said, and this was
emphasised by the judge, that in the present case the service charge regimes
were not the same for each block. He specifically made the point that he was
not ruling on the situation where the blocks within an estate are all governed
by identical service charge provisions. That said, given the basis of his
decision, which was the wording of the Act it is difficult to see how a court
could come to a different conclusion simply because the service charge
provisions are the same.
