Tort Law Chapter 15: Defective Premises: Pure Economic Loss

Front 1

Junior Books v Veitchi Co Ltd [1983] (HL)

Back 1

Junior Books justified overturning normal rule that claims arising under a construction contract should be pursued in contract.

Here, main contractors employed to construct a factory nominated D, as specialist sub-contractors, to lay the floor. C alleged that floor was defective (though not dangerous) and claimed cost of replacing floor plus consequential financial loss.

HL allowed recovery on ground that proximity of relationship between parties was so close as to be as good as a contract and C had, to sub-contractor’s knowledge, relied on his skill and experience. There was no question of indeterminate liability in this situation because C was plainly foreseeable as an identified individual.

=> However, decision has not subsequently been followed and has been distinguished to extent that it can be said to be unique to its own facts.

Hint 1

specialist sub-contractors were contracted to lay floor. C alleged that floor was defective (though not dangerous)

Front 2

Anns v Merton LBC [1978] (HL)

Back 2

Defective product economic loss is recoverable in contract but such loss is not normally recognised in tort. However, in Anns HL allowed claim for recovery of repair costs arising from defective construction of a building.

Here, some years after completion, a block of flats began to develop cracks in walls. Despite prior approval of building foundations by local council, cracks were caused because foundations upon which flats were built were too shallow.

immediate question (issue) that HL had to decide was whether a local authority, whose agents had failed to inspect or had inspected negligently foundations of a building under construction, could be liable in tort towards an ultimate purchaser of that building when it developed defects which posed an imminent threat to safety and health.

In considering nature of damages recoverable, Lord Wilberforce said:

“relevant damage is in my opinion material, physical damage, and what is recoverable is amount of expenditure necessary to restore dwelling to a condition in which it is no longer a danger to health or safety of persons occupying”

In finding that C had suffered ‘material physical damage’, D council were required to compensate for repair costs needed to avoid a danger to health and safety of occupants of building.

=> in Murphy a seven-member HL found it necessary to overrule its own decision in Anns (marking a contraction in scope of a duty of care in economic loss cases).

Criticism of Anns (Deakin):

. … Anns characterised C’s loss as ‘material, physical damage’ even though Lord Denning had, extrajudicially, made it clear that this was a mis-description – one presumes in order to help a ‘deserving’ C. For a time HL persisted with this notion but, eventually, it came to accept that loss was purely economic.

Hint 2

Despite prior approval of building foundations by local council, cracks in walls of a block of flats were caused because foundations upon which flats were built were too shallow.

Front 3

D&F Estates v Church Commissioners [1989] (HL)

Back 3

In D&F Estates, defective product consisted of negligently applied plaster. This was laid by specialist subcontractors during building of a block of flats and, some years later, it became loose and began to flake off. C brought a tort action against builder, with whom they had no contractual relationship, for cost of renewing plaster and loss of rent while work took place.

HL regarded this as a case of construction of an inherently defective building and, until such time as falling plaster caused personal injury or damage to ‘other property’, like carpets or furniture, there could be no liability in negligence. mere discovery of a defect in a ‘product’ (pure economic loss) cannot justify using tort to circumvent law of contract.

HL cast doubt on decision in Anns and clarified distinction between situations where:

1. an undiscovered defect materialised and caused personal injury or damage to other property – this loss is recoverable in tort.

2. a defect is discovered before damage has occurred and building owner needs to incur cost of remedying defect to avoid threat of harm (potential occupational liability) – this loss is pure economic loss and not recoverable in tort.

Hint 3

defective product consisted of negligently applied plaster. This was laid by specialist subcontractors during building of a block of flats and, some years later, it became loose and began to flake off

Front 4

Murphy v Brentwood DC [1991] (HL)

=> applied D&F Estates

Back 4

approach in D&F Estates was subsequently applied in Murphy, where HL ruled that a local authority was not liable in negligence to a building owner or occupier for losses arising from its failure to ensure that building was designed or erected in accordance with building regulations.

C had purchased a house. In 1981 foundations of house were found to have subsided causing cracks in walls which threatened whole fabric of property. C sued Council who had approved original construction plans for house.

HL made it clear that cracks in walls constituted damage to very property in question; it was not a case of defective foundations causing damage to ‘other property’ (e.g. components approach). Council was not liable.

According to Lord Bridge, to allow recovery for a defect in property would be to introduce into law of tort a non-contractual remedy as to fitness for purpose. Such guarantees are province of law of contract and not tort law. In this case house had only damaged itself and was therefore merely a defective house which was a bad bargain; unless and until actual physical damage had occurred, cost of making house safe or any diminution in its value was pure economic loss

=> This is called the Murphy principle.

Hint 4

C had purchased a house. In 1981 foundations of house were found to have subsided causing cracks in walls which threatened whole fabric of property. C sued Council who had approved original construction plans for house.

Front 5

D&F Estates v Church Commissioners [1989] (HL)

and

Murphy v Brentwood DC [1991] (HL)

Criticisms about development of law in this area:

Back 5

Criticisms about development of law in this area:

1. survival of Hedley Byrne produce different liability outcomes:

result may be that architects and consulting engineers who give bad advice leading to construction of shoddy buildings may be liable to their owners, but builders, whose negligence produces same result, will not. (Deakin)

2. internal inconsistencies of common law result in different liability approaches to builders and surveyors: second purchaser of a building has no action against local authority or builder but may still have an action against surveyor who has been employed by building society to value premises in question prior to granting a mortgage to second purchaser/mortgagor. (Smith v Bush)

A technical explanation for this could be found by invoking notoriously vague notion of proximity and arguing that it is not satisfied in case of local authority inspector and house owner/mortgagor. (Deakin)

3. Builders may still be liable for anticipatory cost of repairs 'if a buildings stands so close to boundary of building owner’s land that after discovery of dangerous defect it remains a potential source of injury to persons or property on neighbouring land or on highway. If this is justified by distinction between negligence and nuisance, it must be absurd. (Deakin)

Front 6

complex structure theory in

D&F Estates v Church Commissioners [1989] (HL)

and

Murphy v Brentwood DC [1991] (HL)

Back 6

‘complex structure theory’ was discussed in judicial speeches. According to this, a building, instead of being seen as a unified structure, might instead be thought of as composed of many smaller components. If one of these malfunctioned and impacted on other parts of building, this could be regarded as damage to ‘other property’ and thus potentially recoverable.

example given by Lord Bridge in Murphy was that of a faulty central heating boiler exploding and causing damage to rest of house. He went on to doubt, however, whether such a boiler could accurately be thought of as part of structure of building in same sense as walls or foundations and concluded that ‘complex structure’ approach offered ‘no escape’ from Murphy principle.

=> In Murphy one of Lords at least regarded this theory as totally ‘artificial’ (Lord Oliver).

Front 7

Bellefield Computer Services Ltd v E Turner & Sons Ltd (2000) (EWHC)

=> applied Murphy v Brentwood

Back 7

Defendant builders constructed a steel building to be used as, inter alia a dairy. original owners sold it to appellants. A fire spread from storage area to rest of dairy and caused much damage. Builders, had they followed good building practice and requirements of Building Regulations, would have constructed a compartment wall which would have prevented spread of fire. fire passed over top of wall which was not constructed to good building practice. C appealed a preliminary ruling that damages for part of loss were unrecoverable as pure economic loss.

Held: claim amounted to a claim for an omission to act. In many circumstanmces it is not possible to draw a satisfactory line between misfeasance and malfeasance. There was no proper reason to differentiate between original and subsequent owners. judge had correctly interpreted and applied law, and appeal and cross appeal failed.

=> Decision in Murphy establishes clearly that duty of care owed under Donoghue v Stevenson principles excludes economic loss consequent upon damage to chattel in question itself; and where damage in question is damage to a building, that damage is to be treated as economic loss and irrecoverable in absence of a contractual or other special relationship.