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A Case for Recognising Economic Loss in Defective Building Cases*
Published online by Cambridge University Press: 16 January 2009
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The history of a typically defective building may be traced as follows. The building is badly constructed, often because the foundations are too shallow to support it. Soon after this the building is purchased and it may later be sold to a second purchaser. The inadequate foundations gradually shift and cracks appear in the structure and the owner discovers the state of the building. He sues the builder for negligently constructing the building and the local authority for negligently failing to require the builder to conform to the Building Regulations, which require adequate foundations be laid to support the load of the building.
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References
1 Previously the courts held builders to be immune from negligence actions by applying the immunity conferred upon vendors of realty (Bottomley v. Bannister [1932] 1 K.B. 458)Google Scholar and landlords (Cavalier v. Pope [1906] A.C. 428).Google Scholar Even after Donoghue v. Stevenson [1932] A.C. 562,Google Scholar the courts held that this immunity remained intact (Otto v. Bolton & Norris [1936] 2 K.B. 46)Google Scholar. In Gallagher v. McDowell Ltd. [1961] N.I. 26Google Scholar and Sharp v. E. T. Sweeting & Son Ltd. [1963] 1 W.L.R. 665,Google Scholar the immunity was restricted to builders who owned the land upon which they built. Then, in Dutton v. Bognor Regis U.D.C. [1972] 1 Q.B. 373Google Scholar and Anns v. Merton L.B.C. [1978] A.C. 728,Google Scholar the Court of Appeal (Stamp L.J. dissenting) and House of Lords (obiter) regarded the immunity of all builders abolished. This was confirmed in Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B. 554Google Scholar (C.A.) (builder) and in Rimmer v. Liverpool C.C., (1984) 269 E.G. 319 (C.A.) (builder/lessor).Google Scholar
2 The current regulations are the Building Regulations 1976 (S.I. 1976 No. 1676) as amended in 1978 (S.I. 1978 No. 723), in 1981 (S.I. 1981 No. 1338) and in 1983 (S.I. 1983 No. 195). The principal regulations came into force on 31 January 1977. Liability may arise based on these regulations as a breach of statutory duty: see Anns, supra, per Lord Wilberforce; Worlock v. Saws (a firm), infra, and Eames London Estates Ltd. v. North Hertfordshire D.C., infra. Building in London is governed by the London Building Acts 1930 to 1978. On the regulations generally, see Holyoak and Allen, Civil Liability for Defective Premises (1982), paras. 3.110–3.125.Google Scholar
3 Usually liability is based upon negligent inspection or non-inspection: see Anns, supra. See also Haig v. London Borough of Hillingdon (1980) 19 B.L.R. 145Google Scholar (non-inspection of joists). Liability can also be based upon negligently passing building plans which fail to comply with the regulations (see s.64 (as amended) of the Public Health Act 1936 and Dennis v. Chamwood B.C. [1983] Q.B. 409).Google Scholar
4 For liability in contract, see Holyoak and Allen, op. cit. For liability under the Defective Premises Act 1972, see Spencer [1974] C.L.J. 307 and [1975] C.L.J. 48.
5 Dutton, supra, and Anns, supra (actions settled); Batty, supra; Sutherland v. C. T. Maton & Son (1976) 3 B.L.R. 87;Google ScholarWorlock v. Saws (a firm) (1983) 22 B.L.R. 66 (C.A.);Google ScholarBowen v. Paramount Builders (Hamilton) Ltd. and McKay [1977] 1 N.Z.L.R. 394 (N.Z.C.A.);Google ScholarHone v. Benson (1978) 248 E.G. 1013.Google Scholar On the position of builders, see Gravells, [1979] Conv. 97 and Smillie (1978) 8 N.Z.U.L.R. 109.Google Scholar
6 Eames London Estates Ltd. v. North Hertfordshire D.C. (1980) 18 B.L.R. 50;Google ScholarAcrecrest Ltd. v. W. S. Hattrell & Partners [1983] Q.B. 260 (C.A.);Google ScholarBrook Enterprises Ltd. v. Wilding (1973) 38 D.L.R. (3d) 472 (B.C.S.C).Google Scholar
7 Pirelli General Cable Works Ltd. v. Oscar Faber & Partners [1983] 2 A.C. 1 (H.L.);Google ScholarSurrey District v. Church (1977) 76 D.L.R. (3d) 721 (B.C.C.A.).Google Scholar
8 Batty, supra; Sparham-Souterv. Town and Country Developments (Essex) Ltd. [1976] Q.B. 858 (C.A.)Google Scholar
9 Dutton, supra; Anns, supra; Dennis v. Charnwood B.C., supra; Higgins v. Arfon B.C. [1975] 1 W.L.R. 524;Google ScholarCrump v. Torfaen B.C. (1982) 19 B.L.R. 84.Google Scholar
10 S.2 of the Limitation Act 1980 (formerly s.2(1)(a) of the 1939 Act) provides that: “An action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued.” See Holyoak, and Allen, , op. cit., paras. 1.35–1.45.Google Scholar
11 Supra, n. 1.
12 Supra, n. 1.
13 Supra, n. 1.
14 Supra, n. 5.
15 Supra, n. 7.
16 Dutton, supra, per Lord Denning, M.R. at p. 396;Google Scholarper Sachs, L.J. at pp. 403–404;Google Scholar contrast Stamp, L.J. at pp. 414–415;Google ScholarAnns, supra, per Wilberforce, Lord at p. 759;Google ScholarBatty, supra, per Megaw, L.J. at p. 571;Google Scholarper Bridge, L.J. at pp. 572–573;Google ScholarBowen, supra, per Richmond, P. at p. 410;Google Scholarper Woodhouse, J. at p. 417;Google Scholarper Cooke, J. at pp. 422–423;Google ScholarPirelli, supra implicitly by Lord Fraser at p. 16.
17 [1983] A.C. 520.
18 See McGregor on Damages, 14th ed., Chap. 7; Ogus, , The Law of Damages (1973), pp. 85–93.Google Scholar
19 (1973) 40 D.L.R. (3d) 530. See Smith (1974) 9 U.B.C.L.R. 213 and Linden, , Canadian Tort Law, 3rd ed., pp. 421–429.Google Scholar
20 Ibid., at p. 553 (Hall J. concurring).
21 [1978] A.C. 728.
22 Ibid., at pp. 759–760.
23 Ibid., at p. 760 (italics added). See also Lord Salmon at p. 770.
24 Ibid., at p. 759.
25 [1978] Q. B. 554.
26 Ibid., at p. 571.
27 Ibid., at pp. 576–577.
28 [1983] A.C. 520.
29 Ibid., at p. 550. See also Lord Roskill at pp. 542 and 544.
30 Ibid., at p. 535.
31 Supra, n.16.
32 Supra, n.24.
33 Supra, n.16.
34 [1983] 2 A.C. 1. See notes by Burrows (1983) 46 M.L.R. 509 and Stanton (1983) L.Q.R. 175.
35 Sparham-Souter v. Town and Country Developments (Essex) Ltd., supra.
36 As being inconsistent with Cartledge v. E. Jopling & Sons Ltd. [1963] A.C. 758Google Scholar and the “concealed fraud” provisions in s.26 of the Limitation Act 1939 (now s.32 of the Limitation Act 1980).
37 Supra, at p. 16.
38 See Brandon, Lord in Junior Books, supra, at p. 551.Google Scholar
39 Supra, , The Discipline of Law (1979), pp. 264–269.Google Scholar
40 Supra, n.25, at p. 571.
41 [1983] 2 A.C. 1, 16, 18.
42 See letter in (1983) 133 N.L.J. 506 (J. Parris).
43 [1983] 1 W.L.R. 1436. See also Keaerman v. Hansel Properties Ltd. (1983, unreported) where the judge rejected this part of Lord Fraser's opinion and applied the general rule in Pirelli. But note that there was no danger of the building collapsing.
44 Ibid., at p. 1444.
45 See the persuasive argument of Duncan Wallace (1978) 94 L.Q.R. 60.
46 See Craig, (1976) 92 L.O.R. 213;Google ScholarAtiyah, (1967) 83 L.Q.R. 248;Google ScholarCane, (1979) 95 L.Q.R. 117Google Scholar and Weir, , A Casebook on Tori, 5th ed., pp. 40, 49 and 62.Google Scholar
47 The best judicial example of this is Spartan Steel Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] Q.B. 27.Google Scholar See also Cattle v. Stockton Waterworks Co. (1875) L.R. 10 Q.B. 453;Google ScholarWelter & Co. Ltd. v. Foot and Mouth Disease Research Institute Ltd. [1966] 1 Q.B. 569.Google Scholar See also the articles cited in the preceding note. For an interesting analysis based on economic theory, see Bishop, (1982) 2 O.J.L.S. 1, 207Google Scholar and Rizzo, (1982) 2 O.J.L.S. 197 and (1982) 11 J.Leg. Studies 281.Google Scholar
48 Ultramares Corporation v. Touche (1931) 174 N.E. 441, 444, per Cardozo C.J.Google Scholar
49 See cases cited at n.47.
50 [1964] A.C. 465.
51 In Junior Books Lord Roskill, at p. 540,Google Scholar regarded the House of Lords as having allowed recovery of pure economic loss in Morrison Steamship Co. Ltd. v. Greystoke Castle (Cargo Owners) [1947] A.C. 265.Google Scholar But the House (in the earlier case) seems to have thought it was basing its decision on the esoteric law of general average.
52 [1964] A.C. 465, per Reid, Lord at p. 486;Google Scholarper Morris, Lord at pp. 502–503;Google Scholarper Hodson, Lord at p. 514;Google Scholarper Devlin, Lord at p. 529;Google Scholarper Pearce, Lord at p. 538.Google Scholar
53 See the thorough examination in the High Court of Australia in Caltex Oil (Australia) Property Ltd. v. The Dredge “Willemstad” (1977) 136 C.L.R. 529,Google Scholar where the court referred to Craig, op. cit. On this case and for a valuable analysis generally see also Hayes, (1979) 12 Melb.U.L.R. 79.Google Scholar
54 [1980] Ch. 297. See also Schiffahrt & Kohlen G.m.b.H. v. Chelsea Marine Ltd. [1982] Q.B. 481Google Scholar and Yianni v. Edwin Evans & Sons [1982] Q.B. 438.Google Scholar
55 J.E.B. Fasteners Ltd. v. Marks, Bloom & Co. (a firm) [1981] 3 AU E.R. 289 (Woolf J.);Google Scholar not affected on this point on appeal at [1983] 1 All E.R. 583. Here there was potential reliance by the limited class, but that does not seem to be essential: see the Caltex Oil case, supra, and the discussion of it in Ross v. Counters (a firm), supra. See also Scott Group Ltd. v. McFarlane [1978] 1 N.Z.L.R. 553 (N.Z.C.A.)Google Scholar and Haig v. Bamford, Hagan, Wicken and Gibson [1976] W.W.R. 331 (S.C.C.).Google Scholar
56 Cases cites supra, n.16.
57 See Lord Roskill's comments, infra, at text to n.59; Ross v. Counters (a firm), supra; but contrast Searle v. Perry [1982] V.R. 193.Google Scholar The readiness with which the courts permit contemporaneous actions in tort and contract on the same facts is indicative of the breakdown of barriers between the two actions. See Midland Bank Trust Co. v. Hett, Stubbs & Kemp [1979] Ch. 384;Google ScholarBatty, supra; Esso Petroleum Co. Ltd. v. Mardon [1976] Q.B. 801Google Scholar and MacPherson & Kelley v. Kevin J. Prunty & Associates [1983] V.R. 573.Google Scholar See Morgan, (1980) 58 Can.Bar.R. 299.Google Scholar
58 Cane, (1979) 95 L.Q.R. 117, 138–140;Google ScholarAtiyah, , The Rise and Fall of Freedom of Contract (1978), pp. 761–763;Google ScholarWallace, Duncan (1978) 94 L.Q.R. 60;Google ScholarFridman, (1977) 93 L.Q.R. 922Google Scholar and Holyoak, (1983) 99 L.Q.R. 591.Google Scholar
59 [1983] A.C. 520, 545.
60 Ibid. See notes by Jaffey [1983] C.L.J. 37 and Palmer and Murdock (1983) 46 M.L.R. 213.
61 Ibid., at p. 545. See also Lord Keith at p. 536F.
62 Lords Fraser, Russell, Keith and Roskill. 63 Per Lord Roskill at p. 545, Lord Fraser at p. 532 and Lord Keith at p. 535. 64 Lord Keith at pp. 536–537 thought that a claim for a faulty article could only be brought in contract. See also Lord Brandon at pp. 551–552. Nevertheless, Lord Keith found for the plaintiffs on the ground that the costs of shutting down the factory were recoverable as economic loss and the cost of replacing the floor was recoverable as a means of mitigating the continuing “shut down” losses.
65 As restated by Lord Wilberforce in Anns, supra, at p. 751. There are two stages before a duty of care will be recognised: first, the degree of proximity, and then the question of policy considerations. Lord Wilberforce's approach is now treated by the judges as of general application: see Smith and Burns (1983) 46 M.L.R. 147.Google Scholar
66 Supra, at p. 546. See also Lord Fraser at p. 533.
67 Note the conflicting views expressed in McLoughlin v. O'Brian [1983] A.C. 410 on the relevance of policy considerations.Google Scholar
68 Supra, at p. 546. See also Sachs L.J. at p. 404 in Dutlon, supra. Lord Roskill also rejected the “floodgates” argument raised by the defendants as “specious” and “in terrorem or doctrinaire.” See also Lord Fraser at p. 532.
69 Supra, per Roskill, Lord at pp. 546–547, and Lord Fraser at p. 533.Google Scholar But note Lord Fraser's apparently contradictory assumption at pp. 533–534.
70 Supra, at p. 547.
71 Supra, at pp. 551–552. See also Lord Keith at pp. 536–537.
72 It is a fiction created by the law to give effect to the implied terms of merchantability and fitness for purpose. See s. 14 of the Sale of Goods Act 1979. Quaere whether it is true when a named brand, such as a Rolls-Royce or bottle of Chanel perfume, is purchased? See comments of the Law Commission in the 1970 Report (No. 40) on the Civil Liability of Vendors and Lessors for Defective Premises.
73 The vendor may rely on some specific false representation and sue under Hedley Byrne: See Smith v. Mattacchione (1971) 13 D.L.R. (3d) 437;Google Scholar the contrasting result in Presser v. Caldwell Estates Property Ltd. [1971] 2 N.S.W.L.R. 471 may be explicable because the court applied the more restrictive Mutual Life case.Google Scholar
74 Even with the recent relaxation of this maxim in Dutton, Anns and Batty, the cases which decide that a vendor is not liable for failing to disclose a defect that he did not himself create (Robbins v. Jones (1863) 15 C. B. (N. S.) 221;Google ScholarLane v. Cox [1897] 1 Q.B. 415;Google ScholarCavalier v. Pope [1906] A.C. 428)Google Scholar are still good law. Contrast Lock v. Stibor (1962) 34 D.L.R. (2d) 704,Google Scholar rejecting this view and accepting the criticism by Williams (1941) 5 M.L.R. 194. See also Newsome [1980] Conv. 287 and Law Commission, op. cit.
75 This might produce the same result in the Presser case, supra, today because the representation was as to the structure of the subsoil.
76 Perhaps the position should be different when the vendor is a professional property salesman, e.g., a developer.
77 Greenhalgh v. Brindley [1901] 2 Ch. 324Google Scholar and the cases cited in Wettern Electric Ltd. v. Welsh Development Agency [1983] Q.B. 796,Google Scholar where the court held that a term as to fitness or suitability for purpose could be implied into a contract granting a licence to occupy land. Additionally the courts have implied terms into contracts to build a house: see Hancock v. B. W. Brazier (Anerley) Ltd. [1966] 1 W.L.R. 1317, 1332,Google Scholarper Lord Denning M.R. See now the Supply of Goods and Services Act 1982. Sometimes, though rarely, an express term may be included: Fraser-Reid v. Droumtsekas (1980) 103 D.L.R. (3d) 385.Google Scholar
78 S.14 of the Sale of Goods Act 1979 only applies to sellers who act “in the course of a business.”
79 See, e.g., Yianni v. Edwin Evans & Sons, supra (building society surveyor). See Brazier [1981] Conv. 96.Google Scholar
80 J.E.B. Fasteners Ltd. v. Marks, Bloom & Co. (a firm) [1983] 1 All E.R. 583,Google Scholar especially Stephenson, L.J. at pp. 588–589Google Scholar and Donaldson, L.J. at p. 588.Google Scholar
81 Failure by a purchaser to employ a surveyor will not excuse a builder (Sutherland v. C. R. Maton & Son, supra) or a local authority (Higgins v. Arfon B.C., supra). In the end it will be a question of the reasonableness of the purchaser's behaviour, taking account of such factors as current practice, the age of the property, its cost and whether the purchaser knows that the building society has employed a surveyor (per Mars-Jones, J. in Higgins at p. 526Google Scholar). See also Haig v. London Borough of Hillingdon, supra. On intermediate inspection by the plaintiff see Bowen, supra; lull v. Wilson and Horton [1968] N.Z.L.R. 88, 97,Google Scholarper Richmond J.; and Smillie, op. cit.
82 For example the Caltex Oil case, supra, and Ross v. Counters, supra.
83 In Dutton, supra, and Anns, supra, the plaintiffs were owner/occupiers. In Acrecrest Ltd. v. Hattrell & Partners [1983] Q.B. 260 a non-occupying owner was allowed to sue.Google Scholar This case should only be considered to be correct if the plaintiff/landlord was under an obligation, under the lease, to carry out the repairs. Otherwise the only damages he should be able to recover is the damage, if any, to his reversionary interest. If the tenant/occupier was under an obligation to repair then it is suggested that he was the proper plaintiff.
84 As Lord Wilberforce considered it must be in Anns, supra, at p. 758.
85 See Clerk & Lindsell on Torts, 15th. ed., paras. 9.30–9.46 and 1st supplement.
86 It is six years long: see s.2 of the Limitation Act 1980.
87 Cartledge v. E. Jopling & Sons Ltd. [1963] A.C. 758;Google ScholarShort v. M'Carthy (1820) 3 B. & Ald. 626.Google Scholar
88 [1982] 1 W.L.R. 86. Note the comments on this case by Hodgson J. in Dove v. Banham Patent Locks Ltd., supra. See also Howell v. Young (1826) 5 B. & C. 259;Google ScholarMelton v. Walker & Stanger (1981) 125 S.J. 861;Google ScholarBaker v. Ollard & Bentley (a firm) (1982) 126 S.J. 593.Google Scholar
89 Supra. Lord Denning actually held, following Diplock, L.J. in Bagot v. Stevens Scanlon & Co. Ltd. [1966] 1 Q.B. 197,Google Scholar that time ran from the date of construction. This view is difficult to support, because at that time the property is not owned by anyone who can sue and this is a pre-condition to a cause of action arising and hence the limitation period beginning to run. His Lordship surely meant the date expressed in the text. Sachs L.J. at pp. 405–406 reserved his opinion on the limitation point.
90 Supra.
91 Supra, per Lord Wilberforce at p. 760.
92 Supra.
93 In Anns (present or imminent danger to health or safety of occupiers) and in Pirelli (damage to the structure of the building).
94 [1976] Q. B. 858, 875, per Roskill L.J.; per Geoffrey Lane L.J. at p. 880.
95 (1982) 19 B.L.R. 50.
96 Supra, at p. 18.
97 For the problem of allowing subsequent owners to sue, after Pirelli, when damage has occurred during the ownership of their predecessors in title, see Robertson, (1983) 99 L.Q.R. 559.Google Scholar
98 See Edmund Davies Committee, Cmnd. 1829 (1962), para. 17.
99 [1963] A.C. 758.
1 Limitation Act 1980, ss.ll to 14, consolidating earlier legislation. On these provisions, see Davies, (1982) 98 L.Q.R. 249.Google Scholar
2 Pirelli, supra, per Lord Scarman at p. 19.
3 Review of the law was under way before Pirelli: see Consultative Document of the Law Reform Committee's Sub-Committee on Latent Damage (published in July 1981).
4 Exceptionally, only demolition costs may be awarded where the building is useless: see Auburn Municipal Council v. A. R. C. Engineering Property Ltd. [1973] 1 N.S.W.L.R. 513, 531,Google Scholarper Hutley J. A. (a contract case). Contrast the award in Batty, supra.
5 See McGregor, , op. cit., paras. 997–1039;Google ScholarHolyoak, and Allen, , op. cit., paras. 1.9–1.17;Google Scholar Dugdale and Stanton, Professional Negligence, paras. 33.18–33.24 and 33.30–33.31.
6 Phillips v. Ward [1956] 1 W.L.R. 471Google Scholar (a contract action against a surveyor); Perry v. Sidney Phillips & Son [1982] 1 W.L.R. 1297 (a contract and negligence action against a surveyor).Google Scholar
7 Anns, supra; Bowen, supra. In Baity, supra, the court awarded agreed damages of £13,000. Since the property was unsaleable this figure may reflect replacement value: see Cane, (1979) 95 L.Q.R. 117, 127.Google Scholar See also the damages claim in Junior Books.
8 But not always: Upstone v. G. D. W. Carnegie & Co. (1978) 122 S.J. 285.Google Scholar
9 The courts have gone further and permitted the repair costs to be calculated at the date of the trial and not at the date when the damage was suffered: see Dodd Properties (Kent) Ltd. v. Canterbury City Council [1980] 1 W.L.R. 433 (C.A.).Google Scholar See also Jarvis v. T. Richards & Co. (1980) 124 S.J. 793Google Scholar and Bevan Investments Ltd. v. Blackhall Strutters (No. 2) [1978] 2 N.Z.L.R. 97Google Scholar (a contract case). On the effects of inflation, see Feldman, (1980) 43 M.L.R. 708Google Scholar and Wallace, Duncan (1980) 96 L.Q.R. 101.Google Scholar
10 Another factor might be whether the building was privately owned and residential (Hollebone v. Midhurst and Fernhurst Builders Ltd. [1968] 1 Lloyd's Rep. 38;Google Scholar see also Perry v. Sidney Phillips & Son at first instance, supra).
11 For an application of economic principles to negligence actions brought against the legal profession, see Veljanovski and Whelan, (1983) 46 M.L.R. 700.Google Scholar
12 [1970] 1 Q.B. 447, 472–473.
13 [1982] 1 W.L.R. 1297.
14 [1982] 1 All E.R. 1005.
15 Supra, at pp. 1301–1302.
16 Supra, at pp. 1303–1304. Ken L.J., at p. 1306, reserved his opinion on this point.
17 This is reflected in the courts' refusal to find local authorities liable without removing the builder's immunity. See Dutton, supra, but contrast Stamp L.J. at pp. 414–415, and Anns, supra.
18 Pirelli, supra (an engineer) and Acrecrest, supra (an architect).
19 Supra, at p. 759. On the meaning of “present or imminent danger” see Crump v. Torfaen B. C. (1982) 19 B.L.R. 84, 94–95,Google Scholarper Balcombe J. and Batty, supra, per Megaw, L.J. at pp. 571–572.Google Scholar
20 Ibid.
21 Supra.
22 Supra, at pp. 758 and 759.
23 Small sums for inconvenience, anxiety and vexation caused by knowledge of the dangerous state of the building are recoverable consistently with the “danger” element. See Gabolinscy v. Hamilton City Corporation [1975] 1 N.Z.L.R. 150;Google ScholarYoung v. Tomlinson [1979] 2 N.Z.L.R. 441;Google ScholarPerry v. Sidney Phillips & Son, supra.
24 Supra, at p. 17.
23 [1983] J.P.L. 242. See also Ketterman v. Hansel Properties (1983, unreported).Google Scholar
26 [1977] 1 N.Z.L.R. 394, 411, per Richmond P.; per Woodhouse J. at p. 417; per Cooke J. at p. 428.
27 The principal authority is the Spartan Steel case, supra.
28 Dutton, supra, per Sachs, L.J. at p. 408.Google Scholar But see Lyons v. F. W. Booth (Contractors) Ltd. and Maidstone B.C. (1982) 262 E.G. 981Google Scholar (diminution in value because of the building's bad reputation recovered against builder and local authority). Similarly a local authority should not be liable for such consequential losses as lost profits. But in Anns both Lord Wilberforce (at p. 759) and Lord Salmon (at p. 771) recognised that expenses for necessary displacement might also be recoverable. See also Bowen, supra (lost rent recovered against a builder).