LORD JUSTICE ROBERT GOFF: There is before the court an appeal by Leroy Somer Electrical Motors Ltd., the Third Defendants in the action, against a decision of Mr Justice Kenneth Jones in which he determined the issue of liability as between the plaintiff, Robert Muirhead, and the Third Defendants in favour of the plaintiff.
The matter has arisen in the following way. The Respondent (the plaintiff in the action) carries on business as a wholesale fish merchant in Sunderland. He conceived a plan for expanding his trade in lobsters by storing lobsters bought in during the summer season, when the price is low, and then reselling them on the Christmas market when the price is high. He therefore decided to install a large tank in which the lobsters were to be stored. Sea water was to be collected, filtered and pumped into the storage tank; the water had then to be re-circulated in order to oxygenate it. For that purpose seven pumps were needed - three to pump the water into the header tank and filters and four to pump water into the main tank.
The tank and pumps were installed by the first defendants, Industrial Tank Specialities Ltd. (ITS). ITS is a subsidiary of Purley Pools Ltd. The pumps were supplied by a company called ITT Marlow (which is a subsidiary of the American multi-national company ITT) through an English subsidiary called ITT (UK) Ltd. (the second defendants). ITT (UK) did not supply the pumps direct to ITS. The chain of sales of the pumps consisted of sales by ITT (UK) to a company called Kafco (U.K.) Ltd; then by Kafco to Purley Pools; then by Purley Pools to ITS; and then finally, as part of the installation, by ITS to the respondent. Each pump consisted of an impeller driven by an electric motor, the motor being manufactured in France by very substantial manufacturers of electrical equipment called Leroy Somer. They supplied the motors to ITT Marlow through their English subsidiary Leroy Somer Electrical Motors Ltd. (the appellants); but for the purposes of the action the appellants were treated as the manufacturers of the electric motors. In fact the complete pump units were assembled by the appellants for ITT Marlow in this country at Skelmersdale, and were then despatched by the appellants direct to Purley Fools, though the contractual chain of sales was as I have already indicated.
The installation of the large tank and pumps was carried out by ITS at the respondent's premises in Sunderland in July and August 1979. The pumps 'were required to run for 24 hours a day. Within at most a few days the electric motors driving the pumps started to cut out, probably one or two at a time. Furthermore, the installation incorporated devices called starter contacts, the effect of which was that, if a pump cut out, the starter contact also cut out and had to be manually re-set. If (as often happened) pumps cut out at night, this was not discovered immediately and so time would elapse before the starter devices were re-set and the pumps re-started. Pumps cut out very frequently; a local electrician gave evidence that, between August and December 1979, he was called in by the respondent practically every day to get the pumps going again. On one occasion the re-circulation of the water was affected, and the respondent lost his whole stock of lobsters in the tank. It appears that the tank was very fully stocked with lobsters which, being semi-refrigerated, were incapable of movement though, alive; and the evidence was that, with the tank completely full of lobsters, if the re-circulation and oxygenation of the water in the tank failed the lobsters would begin to die within about 4-8 minutes and all the lobsters would probably be dead within an hour and a half. The judge described this as a remarkable feature of the operation of the plant.
When things began to go wrong the respondent consulted ITS's representative, a Mr Glazier; he telephoned ITS practically every day. Mr Glazier told him that the problem would resolve itself; but, when it did not do so, the pumps were sent back to the suppliers, who arranged for the motors to be re-wound. This work was done on all seven pumps between February and May 1980. The motors were reinstated; but within half an hour they started to cut out again. In August 1980, in consultation with ITS, the respondent had the pumps replaced with different pumps made by different manufacturers. Thereafter the plant operated satisfactorily, but in the meanwhile the respondent had lost not only his whole stock of lobsters stored in the tank but also the profits which he had expected to derive from the installation.
So the respondent commenced proceedings, claiming damages from ITS as first defendants, ITT (UK) Ltd. as second defendants, and the appellants Leroy Somer Electrical Motors Ltd. as third defendants. He obtained judgment against ITS; but they have gone into liquidation, and so the judgment against them has not been satisfied. The action therefore proceeded against ITT (UK) and the appellants.
An order was made that the issue of liability should be tried first. Since there was no contractual relationship between the respondent and either ITT (UK) or the appellants his claim against both was founded in the tort of negligence.
There was no doubt that the cause of the trouble lay in the electric motors in the pumps; and, at the trial of the issue of liability, ITT (UK) made common cause with the respondent in laying the blame on the appellants. Much time was occupied at the trial in investigating the precise cause of the trouble, and the Judge criticised the appellants for exploring "every point which they considered available for their defence whether it was good, bad or indifferent". But, in the end, the cause was identified by the judge, without any doubt, and proved to be very simple. I quote from the judgment (at page 6):
"Within the United Kingdom the voltage range is 220 to 240 volts; by the Electricity Supply legislation a variation of plus or minus 6% is allowed and so a top voltage of 254.4 volts is permissible. I further accept the evidence of Mr Calvert and Mr Dinley that in practice voltages in the U.K. do go as high as 254 volts, according to Mr Dinley's experience, or 252 volts according to Mr Calvert's experience, and that this is most likely to happen near to the sub-station (the plaintiff's premises were only 177 yards away from the sub-station) and/or at night. Thus, when used in the United Kingdom these motors manufactured by Leroy Somer were liable to cut out at the higher voltage and this was obviously what was happening in the plaintiff's installation. Put another way - the plaintiff's pumps cut out because the electric motors were defective in the U.K. in that they were not suitable for use on the U.K. voltage range".
Having identified the cause of the trouble the judge had to consider whether, in consequence, the appellants were liable to the respondent in negligence. It is right that I should record that, in his pleaded case the respondent had claimed damages under the following seven heads:
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(a) cost of pumps |
£4,284.46 and VAT thereon |
| |
(b) additional labour in boiling and refrigerating salvaged dead lobsters, estimated: |
£500.00 |
| |
(c) additional costs of electrical engineers to attend to pumps, Estimated: |
' £500.00 |
| |
(d) additional working time and labour for attendance upon pumps to check, correct tripping out, etc., estimated: |
£1,500.00 |
| |
(e) loss of interest on capital deployed and/or loss of availability of working capital |
to be quantified |
| |
(f) loss of profit on intended sales, estimated: |
£127,575.00 |
| |
(g) Loss of lobsters at cost, estimated: |
£11,000.00 |
The judge's conclusion was expressed by him as follows (at page 24):
"The heads of damage of which the plaintiff complains at para.6 of the statement of claim represent damage suffered by the plaintiff as a result of the third defendants' negligence. The third defendants ought reasonably to have foreseen that as a result of their negligence the plaintiff would suffer damage of the type set out in heads (a) to (g) and the plaintiff is therefore entitled to recover compensation for the actual damage which he can prove he has suffered under those heads. The actual damage will be that suffered in the period immediately following the installation of the pump units containing the third defendants' motor, and continuing thereafter until the new installation was made in August of 1980. There was some suggestion that the plaintiff should have got in touch with the motor manufacturers sooner than he did but, having regard to the evidence, I am unable to hold that he acted in any way unreasonably in the steps which he took through Mr Beatty, ITS and ITT to trace this basically simple fault of which the third defendants ought to have known but about which they were still arguing with the second defendants in 1981".
The .judge held that there was no breach of duty by ITT (UK). He therefore dismissed the respondent's claim against them, and gave judgment for the respondent against the appellants for damages to be assessed.
The basis upon which, the judge concluded that the appellants were liable to the respondent in negligence was as follows. He referred first to what he called the rule in Donoghue v. Stevenson (1932) AC 562. He stated that that rule was for many years confined to injury to the consumer's life or property; but that over recent years the rule had been extended to cover pure economic loss. For the latter proposition, he relied on Junior Books Ltd. v. Veitchi Co.Ltd. (1983) 1 AC 520. He then referred to the well-known passage in Lord Wilberforce's speech in Anns v. Merton London Borough Council (1978) A.G.728, at page 751, as setting out the test for liability; and he also referred in particular to a passage in Lord Roskill's speech in Junior Books at page 546 as indicating that, in answering the questions posed by Lord Wilberforce in Anns, it was appropriate to have regard to the degree of reliance placed by the plaintiff upon the defendant. Applying those principles he held that the appellants owed a duty of care to the respondent to ensure that the electric motors manufactured by them were suitable for use in the United Kingdom and so on the United Kingdom voltage range. He said (at page 25):
"There was a sufficient proximity between them for such a duty to arise. There was a sufficient degree of reliance by the plaintiff upon Leroy Somer's skill in this the one basic matter to justify that finding. And it seems to me only just and reasonable, bearing in mind the complexity of this product, and the fact that, as with so many electrical components today, its construction cannot be fully examined without destroying it, that the third defendants should be subject to such a duty. There was nothing to negative or restrict the duty. In its performance the third defendants were under no greater duty than that imposed upon them by their contract with the second defendants, namely to ensure this motor was in accordance with the agreed specification - at least in this one major and basic respect. There was no exclusion clause. User by the plaintiff was within that which Leroy Somer, with the knowledge they had gained from ITT Harlow, ought reasonably to have foreseen. And further, Leroy Somer ought reasonably to have foreseen that if they breached that duty such commercial users would suffer some loss, albeit pure economic loss. I do not think they could have foreseen the physical damage suffered by the plaintiff, namely the killing of his stock of lobsters. Leroy Somer were in breach of that duty and were negligent in that the electric motors manufactured by them and destined by them for use in the United Kingdom were not suitable for use in the United Kingdom. It is not possible to identify the precise acts or omissions in design or manufacture which constituted their negligence save in one respect. Namely that they failed to test the electric motors, or a representative sample of the batch of which they were part, to ensure that they were fit for use in the United Kingdom. This led them to market as an acceptable product something which the exercise of reasonable care would have prevented".
I wish to refer to certain particular aspects of the (judge's reasoning in the passage I have just quoted. First, in holding that the respondent's user of pumps incorporating the appellants' electric motors ought reasonably to have been foreseen by the appellants, the judge relied in particular upon evidence given by Mr Schneikert, the managing director of ITT Marlow (whose evidence the judge preferred to evidence given by representatives of the appellants),to the effect that, at the material time, the appellants were aware that pumps incorporating their electric motors were being sold for use in a number of different commercial activities, including fish farming; and the judge apparently regarded it as a necessary inference that they should have appreciated that, if used at fish farms, the pumps would be likely to be used for circulation and oxygenation of the water in which the fish were kept.
Secondly, the judge held that the respondent had placed reliance on the appellants, although, as he said, he had not found this by any means an easy matter. The relevant passage in his judgment on the question of reliance reads as follows (at page 14):
"The plaintiff told me that he had no idea Leroy Somer made the motors. ITS told him that it was an ITT fluid handling system that they were installing. They said it was recommended for the use for which the plaintiff required it and he relied entirely upon ITS. ^f course it is obvious that to a very considerable extent the plaintiff would have to and did place reliance upon ITS, but does this mean that he placed no reliance whatsoever upon anybody else and in particular on the manufacturers of the components in the pump units?
"We live in an age when many products are of considerable mechanical, electrical or electronic complexity. Increasingly it becomes impossible for the main manufacturer to have made every part of his product; he must buy in component parts. He may well be responsible for the selection of them, for ensuring that they are suitable for the purpose for which he requires them, but is he required to test each of them? Put another way: would any ultimate user expect him to have tested the component in every possible respect to ensure that it complies with the manufacturer's specification? Or are there respects in which the ultimate user knows that the main manufacturer will rely, and so himself relies, upon the component manufacturer?
"In my judgment that question must be answered in the affirmative. Each case will depend upon its own facts. The defect in this case, as I have said, was one of stark simplicity, and basic in its nature. Whatever else was required of this motor in the United Kingdom everyone, including the plaintiff, required that it should be suitable for use in the United Kingdom, that is on United Kingdom voltages. Thus, at least by implication, the plaintiff must have placed this degree of reliance, in a sense a small but nevertheless basic degree of reliance, upon the manufacturer of the electric motor here. From Leroy Somer's point of view they knew that their motor was being supplied for use in the United Kingdom. They said that it was wound in such a way that it was suitable for use in the United Kingdom, and they must therefore reasonably have foreseen that any user in the United Kingdom would rely upon them to ensure the adequacy of their motor in at least this one fundamental respect".
Third, the judge considered whether there was any term of the contract as between the appellants and ITT Marlow which contained an applicable and effective exceptions clause 8 upon which, on the basis of certain passages in the speeches of Lord Fraser and Lord Roskill in Junior Books, the appellants might be able to rely to defeat a claim in tort by the respondent. This particular point led to rival submissions by the appellants and the respondent as to the documents which contained the contract of sale of the relevant electric motors by the appellants to ITT Marlow -the respondent submitting that the contractual terms were embodied in a master purchase order incorporating ITT Marlow's standard terms, and the appellants contending that the contractual terms were embodied in a specific contract for the order of a batch of motors which incorporated their own standard terms including an exceptions clause which, they submitted, exempted them from liability. On that issue the judge accepted the submission of the respondent, and so held that the appellants' exceptions clause did not apply.
Fourthly, and perhaps most important, the judge approached the case as one concerned essentially with a claim for economic loss. This appears to have been consistent with the approach of the parties below. Even so, there is no doubt that physical damage was indeed suffered by the respondent, in that his lobsters stored in his tank were in fact killed. The judge, however, dismissed that fact with a finding that he did not think that the appellants could have foreseen "the physical damage suffered by the respondent namely the killing of his stock of lobsters". That finding was the subject of challenge before this court, on a respondent's notice. I shall have to consider that respondent's notice later in this judgment; but I shall first consider the appellants' general challenge to the judge's conclusion that they were liable in negligence for the economic loss suffered by the respondent, under the seven heads set out in the respondent's statement of claim.
I turn then to consider the judge's conclusion that the appellants were liable for the respondent's economic loss. Although the judge's approach was based upon the test stated by Lord Wilberforce in Anns, it is plain that he was much influenced by the speeches of the majority of the House of Lords in Junior Books. In particular, he concluded that Junior Books had the effect of extending liability in negligence to cases of pure economic loss; he understood that, having regard in particular to the speech of Lord Roskill in Junior Books, it was necessary to consider whether reliance had been placed by the plaintiff on the defendant; and he also considered, with reference to Junior Books, whether there was any exceptions clause in the contract between, the appellants and ITT Marlow which excused the appellants from liability. It is therefore necessary to consider the speeches of the majority in Junior Books in some detail in order to consider whether they do indeed justify the approach adopted by the judge in the present case.
Junior Books was concerned with a Scottish appeal, the question at issue being whether the pursuer's averments disclosed a good cause of action, the defenders having tabled a plea of relevancy to those averments. The claim of the pursuers was in respect of a floor laid by the defenders, who were specialist flooring contractors, as nominated subcontractors under a building contract for the construction of a factory for the pursuers. The pursuers averred that, owing to the negligence of the defendants, the floor was defective; and they claimed from the defenders, as damages in tort, the estimated cost of replacing the floor and other items of economic loss consequential upon such replacement. They did not allege that the defective state of the floor gave rise to any risk, or likely risk, of physical injury to persons or to property of the pursuers. On those facts the House of Lords, by a majority, upheld a decision of the Court of Session that the pursuers' averments did state a relevant case - i.e. that, in English terms, they did disclose a cause of action.
The speeches of the majority were delivered by Lord Fraser of Tullybelton and Lord Roskill, with whom Lord Russell of Killowen agreed. The leading speech is that of Lord Roskill. After reviewing certain authorities he approached the case on the basis of Lord Wilberforce's statement of principle in Anns; and he therefore asked himself, first, whether there was between the defenders and the pursuers "a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter - in which case a prima facie duty of care arises"; and, second, if the first question was answered affirmatively, "whether there was any consideration which ought to negative, or to reduce or limit, the scope of the duty or the class of person to whom it is owed or the damages to which a breach may give rise". Lord Roskill held that the first question must be answered in the affirmative. Since this was admitted by the defenders, the answer was inevitable; but Lord Roskill, in reaching his conclusion on this point, laid emphasis on a number of factors which demonstrated the closeness of the relationship between the parties in the case before him. Turning to Lord Wilberfores's second question, he could see nothing whatsoever to restrict the duty of care arising from the proximity of which he had spoken, which he had described as a relationship as close as it could be short of privity of contract. In this connection he also laid emphasis on the reliance placed by the pursuers on the defenders as nominated specialist flooring subcontractors. He said (at pages 546-7):
"The concept of proximity must always involve, at least in most cases, some degree of reliance - I have already mentioned the words 'skill' and 'judgment' in the speech of Lord Morris of Borth-y-Gest in Hedley Byrne (1964) A.C.465 , 503. These words seem to me to be an echo, be it conscious or unconscious, of the language of section 14(1) of the Sale of Goods Act 1893. My Lords, though the analogy is not exact, I do not find it unhelpful for I think the concept of proximity of which. I have spoken and the reasoning of Lord Devlin in the Hedley Byrne case involve factual considerations not unlike those involved in a claim under section 14(1); and as between an ultimate purchaser and a manufacturer would not easily be found to exist in the ordinary everyday transaction of purchasing chattels when it is obvious that in truth the real reliance was upon the immediate vendor and not upon the manufacturer".
That was the passage in Lord Roskill's speech which caused the judge to consider the question of reliance in the present case. The concluding words of that passage were strongly relied on by the appellants in argument before this court.
Lord Roskill also considered "what the position would be in a case where there was a relevant exclusion clause in the main contract". He declined to express a decided opinion on that point, since it did not arise on the appeal before him; but he said that in principle he would "venture the view that such a clause according to the manner in which it was worded might in some circumstances limit the duty of care oust as in the Hedley Byrne case the plaintiffs were defeated by the defendants' disclaimer of responsibility".
Lord Fraser, while agreeing generally with Lord Roskill, addressed himself to two particular matters which he regarded as important. The first was the matter which has often been adverted to, in cases of economic loss, by judges of very high authority, of the danger of introducing what Chief Justice Cardozo called "liability in an indeterminate amount for an indeterminate time to an indeterminate class" (see Ultramares Corporation v. Touche 174 IT.E. 441 at 444 (1931). Lord Fraser considered that that argument should not preclude from probation the claim in the case before him, having regard to the extremely close relationship between the parties, which fell only Just short of a contractual relationship; but he stressed that he would decide the appeal strictly on its own facts. Pie said (at page 533):
"I rely particularly on the very close proximity between the parties which in my view distinguishes this case from the case of producers of goods to be offered for sale to the public".
Secondly, he referred to the difficulty which arises, in considering cases concerned with defective goods or services, of ascertaining the standard of duty owed by the supplier. He recognised that the supplier would be free to make with his purchaser whatever contractual arrangements about the quality of the product the purchaser washed. He continued (at page 534):
"I do not think a subsequent owner could be in any better position, but in most cases he would not know the details of the contractual arrangements and, without such knowledge, he might well be unable to (judge whether the product was defective or not. But in this case the respondents, although not a party to the contract with the appellants, had full knowledge of the appellants' contractual duties, and this difficulty does not arise. What the position might have been if the action had been brought by a subsequent owner is a matter which does not have to be decided now".
It is to be observed that, in that passage, Lord Fraser was plainly considering the possible materiality of the terms of the sub-contract, to which the defenders were party, to the claim of the pursuers in the case before him; whereas Lord Roskill (at page 546) had adverted to what the position would be in a case where there was a relevant exclusion clause in the main contract. However, I cannot but think that Lord Roskill was, like Lord Fraser, intending to refer to what was in the particular case a sub-contract with the nominated sub-contractors, treating it as the main contract under which the relevant services were in fact performed.
Lord Brandon of Cakbrook delivered a dissenting speech in which, although of course accepting (as was admitted) that Lord Wilberforce's first question must be answered in the affirmative, he nevertheless considered that there were two important considerations which ought to limit the duty of care which he described (at page 551) as follows:
"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".
Lord Keith of Kinkel adopted an intermediate position between the majority on the one hand and Lord Brandon on the other. He agreed with views expressed by Lord Brandon as to the very considerable difficulties which might arise in assessing the standards of quality by which an allegedly defective product was to be judged, but he nevertheless considered that, on the facts of the particular case, the pursuers' averments did disclose a state of affairs which gave them a complete cause of action.
In the later case of Tate & Lyle Food and Distribution Ltd. v. Greater London Council (1983) 2 AC 509 at 530, Lord Templeman, with whose speech both Lord Keith and Lord Roskill agreed, treated the -Junior Books case as one of the cases where the plaintiff has suffered personal injury or damage to his property. This approach is consistent with the approach of the Lord Ordinary (Lord Grieve) who dealt with the Junior Books case at first instance, though it is important to observe that the property which he regarded as having been damaged by the defenders' alleged negligence was the property actually supplied by them to the pursuers, viz. the upper layer of the floor laid by them in the factory (see 1982 S.L.T. 333). But the fact remains that the ratio decidendi of the decision of the House of Lords in Junior Books is to be found essentially in the speech of Lord Roskill, with which both Lord Fraser and Lord Russell agreed; and it is, I think, that speech to which this court must primarily address itself when considering the applicable principles in the present case.
In order to decide whether the judge was right to approach the case before him on the basis of the principle in Junior Books, it is necessary first of all to seek to identify the principle. Both Lord Fraser and Lord Roskill appeared to have been influenced in particular by what Lord Fraser described as "the very close proximity between the parties". In seeking to understand what they had in mind it is perhaps important to bear in mind what is usually meant by the word "proximity" when used in this context. It does not bear its normal meaning in ordinary speech; as is plain from Lord Atkin's speech in Donoghue v.Stevenson at page 581, it is used as a convenient label to describe a relationship between the parties by virtue of which the defendant can reasonably foresee that his act or omission is liable to cause damage to the plaintiff of the relevant type. In this context, the word "relationship" refers to no more than the relative situations of the parties, as a consequence of which such foreseeability of damage may exist. As I see it, Lord Fraser cannot have been referring to proximity in the sense I have described; and Lord Roskill, when he spoke of the very close "relationship" between the parties must, I think, have had in mind the dealings between the parties which led to the pursuers nominating the defenders, who were specialists in flooring, as sub-contractors to lay the flooring in their factory.
A particular problem arises, however, with reference to reliance. Lord Roskill, in the passage which I have quoted from his speech (at pages 546-7), appears to have regarded reliance by the plaintiff on the defendants as significant, as does Lord Fraser (at page 533). But neither explains why he regarded such reliance as important. Lord Roskill referred to the Hedley Byrne case, in which reliance by the plaintiff was relevant because, without it, the defendant's negligent mis-statement would have caused the plaintiff no damage: he also referred to section 14(1) (now section 14(3)) of the Sale of Goods Act, which was concerned with a manifestation of reliance by the plaintiff on the defendant's skill and judgment which supports the implication of a term in a contract of sale. Junior Books was concerned with neither such case, but with reliance by the plaintiff on the defendant to install a floor which was not defective. It is not, however, clear why reliance should distinguish a case such as Junior Books from other cases in which a defendant may not be held liable. There is, of course, a sense in which it can be said that every successful plaintiff in an action of negligence has relied on the defendant not to be negligent, as every motorist relies on every other motorist in the vicinity to drive carefully; but presumably neither Lord Fraser nor Lord Roskill had that kind of reliance in mind. There is also a sense in which a purchaser of goods relies on the manufacturer to have manufactured goods which are not defective, and so decides to order goods, made by the particular manufacturer, from his immediate supplier. Lord Fraser and Lord Roskill were, however, at pains to distinguish such a case from the case before them. But they did not identify the ground of distinction; and we can see the difficulty which the judge in the present case faced in grappling with the notion of reliance on the facts of the case before him.
Yet another problem arises from the fact that Lord Fraser considered (at page 534) that the building owner in Junior Books, who had full knowledge of the sub-contractors' contractual duties to the main contractor, could be in no better position than the main contractor; and that Lord Roskill, although expressing no concluded opinion, appears to have inclined to the same view (at page 546). But the question then arises: On what principle are contractual terms, not arising under a contract between the parties, to be relevant to a claim in negligence? For only if that principle is identified can we discern in what cases they are to be held applicable in future.
Having studied the speeches of Lord Fraser and Lord Roskill in Junior Books the only principle 1 feel able to formulate which is consistent with (1) the relevance of "a very close proximity between the parties"; (2) the relevance of reliance by the plaintiff on the defendant; and (3) the fact that the defendant may be able to rely on contractual terms with a third party in order to defeat the plaintiff's claim against him, is that, on the facts in Junior Books, it was considered by the majority of the House of Lords that the nominated sub-contractor had assumed a direct responsibility to the building owner. Voluntary assumption of responsibility, in circumstances akin to contract, was the basis of liability in the Hedley Byrne case, which Lord Roskill regarded as relevant in Junior Books both to the invocation by the defendant of contractual terms with a third party, and to reliance. However, I feel very diffident in so analysing Junior Books, because that analysis appears to me to be difficult to reconcile with the factual situation in that case, in which the parties had deliberately structured their contractual relationship in order to achieve the result that (apart from any special arrangements) there should be no direct liability inter se.
Faced with these difficulties it is, I think, safest for this court to treat Junior Books as a case in which, on its particular facts, there was considered to be such a very close relationship between the parties that the defenders could, if the facts as pleaded were proved, be held liable to the pursuers. I feel fortified in adopting that approach by three matters. First, Lord Fraser stressed (at page 533) that he was deciding the appeal before him "strictly on its own facts". Second, in the advice of the Privy Council in Candelwood Navigation Corporation Ltd. v. Mitsui O.S.K.Lines Ltd. and Matsouka Steamships Co.Ltd. (July 1985, as yet unreported), Lord Fraser, who delivered the advice, appears to have treated Junior Books as a decision of limited application. Third, both Lord Fraser and Lord Roskill in Junior Books gave examples which assist us in approaching the present case on a pragmatic basis. For Lord Fraser (at page 533) considered that the very close proximity between the parties in his view distinguished the case before him from "the case of producers of goods to be offered for sale to the public" ; and Lord Roskill (at page 547) contrasted cases in which (as in Hedley Byrne and section 14(3) of the Sale of Goods Act) there was reliance by the plaintiff on the defendant, with cases of claims by ultimate purchasers against manufacturers in respect of goods purchased under ordinary everyday transactions where "it is obvious that in truth the real reliance was upon the immediate vendor and not upon the manufacturer".
It was with these passages in mind, no doubt, that Mr Stewart, as counsel for the respondent, sought before the judge, and again before this court, to identify the present as a case where the respondent's "real reliance" was upon the manufacturer, the appellants. In this I do not think that, despite his admirable argument before this court, he came anywhere near to success. I have already quoted the passage from the judgment of the judge, in which he held that there was the requisite reliance by the respondent on the appellants as manufacturers, and that the appellants must reasonably have foreseen that any user in the United Kingdom would rely upon them to ensure the adequacy of their motors at least in the fundamental respect that they would be suitable for use on United Kingdom voltages. Certainly this was a matter of fundamental importance, and would affect every user of the motors in the United Kingdom. But I find it impossible to differentiate this case from any other case of manufactured goods which, through a fundamental defect, result in financial loss being suffered by an ultimate purchaser who buys them for use in his business and, by reason of the defect, suffers a loss of profits. Furthermore, there was no "very close proximity" between the respondent and the appellants, in the sense that there was no very close relationship between the parties; so that factor, too, is missing from the case.
Mr Stewart, in his argument before this court, relied in particular on the fact that the motors were plated with plates stating that they were suitable for use with electricity of 220/240 volts. But the case was not run on the basis of negligent mis-statement, which is understandable in that there was no evidence that the respondent relied on the statement on the plates as such, rather than on the simple fact that the motors had been bought for use in this country. For that reason, the plates could be relevant only to defeat any argument founded on the proposition that the respondent, in seeking to rectify the particular motors rather than having them replaced by others, had failed to act reasonably in mitigation of his damage.
As I see the present case it must fall within those cases, described by Lord Fraser and Lord Roskill, of ordinary purchase of chattels, in which the buyer, if he seeks to recover damages for purely economic loss arising from defects in the goods, must on the law as it stands look to his immediate vendor and not to the ultimate manufacturer for his remedy.
For these reasons I am unable to accept the conclusion of the judge that the appellants are liable to the respondent in a claim for pure economic loss. However, before leaving this aspect of the case there is one other matter to which I must briefly refer. In his judgment, as I have recorded, the judge considered whether the appellants could, as against the respondent, rely upon the protection of any contractual term under their contract with their immediate purchasers, ITT Marlow. This raised a complicated question of identification of the relevant contractual terms. In view of my conclusion that the appellants are not in any event liable to the respondent in negligence for pure economic loss I can deal with the point very briefly.
Following discussion between ITT Marlow and the appellants the terms upon which it was agreed that work would be performed by the appellants for ITT Marlow were set out on ITT Harlow's paper which was obviously designed to be used when placing specific orders. The work in question was to be done in relation to electric motors to be supplied by the appellants in accordance with certain specifications recorded elsewhere, and consisted of such matters as assembly of ITT Harlow's swimming pool pumps to the motors, warehousing materials, despatch of complete pumps to points within the United Kingdom, preparation for export, storage of spare parts, and repair of certain motors and pumps. The typed part of the document begins with the words:
"Pursuant to our discussions, this document is being executed as a 'master purchase order' in order to specify the special terms and conditions under which ITT Marlow will engage the Leroy Somer Electric Motor Company...to provide the following eight items of materials and services during the period January 1 1978 and December 31 1978".
At the foot of each page of the document are printed instructions (appropriate to specific orders but not to this record of special terms and conditions) which contemplate acknowledgement of the order in such a manner as to express agreement to the order being placed subject to the conditions printed on the reverse. It is plain that this so-called master purchase order did not contemplate any such acknowledgement, and there was no evidence of any such acknowledgement. It follows that the terms on the reverse were not thereby incorporated. In due course specific orders were placed by ITT Marlow using the same forms; but, on the findings of the judge, it appears that these were acknowledged, not on the forms supplied by ITT Marlow but using the appellants' own forms of acknowledgement. These bore on their face the following words:
"We thank you for your order, which will be executed in accordance with our general conditions of sale. (See over)."
Turning to the reverse, the terms there printed open with the words:
"For all our tenders and orders the following terms and conditions will apply unless otherwise agreed in writing..."
The "orders" there referred to must, I think, be understood to mean orders placed on the appellants. Among the following printed terms is to be found a "General Liability & Maintenance Guarantee", limited to correcting and making good any defect or defects in machinery and apparatus manufactured by the appellants. This clause concludes with the following words:
"Our liability is in all cases limited as provided in these conditions and does not extend to consequential damages, either direct or indirect, nor to expenses for repairs or replacements or otherwise, paid or incurred without authority...".
Following acknowledgement in this form the appellants duly supplied pumps incorporating motors to Purley Pools, which were installed at the respondent's premises. Having regard to the documents so exchanged, I am satisfied that the contractual terms applicable as between the appellants and ITT Marlow included the printed terms on the reverse of the appellants' form of acknowledgement, and not the printed terms on the reverse of ITT Marlow's form of order. Strictly speaking, the appellants' form of acknowledgement constituted a counter-offer, which was accepted when Purley Pools took delivery of the pumps delivered pursuant to the order placed on the appellants by ITT Marlow. It follows that, if the contractual terms as between the appellants and ITT Marlow are relevant to the respondent's claim against the appellants in negligence, the appellants are entitled to rely on the exclusion of liability at the end of their General Liability & Maintenance Guarantee, excluding liability for consequential damages and for expenses of replacement paid or incurred without the appellants' authority. However, in the view which I have formed of the case this point does not arise.
I turn finally to the respondent's notice under which he contended that the judge erred in holding that the appellants could not have "foreseen the physical damage suffered by the respondent, namely the killing of his stock of lobsters". If I am right in my conclusion that the respondent cannot succeed in this case in a claim in negligence for purely economic loss, his alternative claim based on the physical damage to his property assumes great importance.
Mr Stewart launched his attack on the judge's finding on this point on two grounds. The second, which I will consider first because I can deal with it briefly, was that the Judge, by holding that the damages claimed by the respondent under paragraph (g)_ of the particulars of damage, i.e., loss of lobsters at cost, were recoverable, must implicitly have held that the appellants ought reasonably to have foreseen that the respondent would suffer physical damage to his lobsters; and that the finding under challenge that they could not have foreseen such damage must be rejected as inconsistent with that conclusion. However, it became apparent in the course of argument before us that the claim to economic loss had not been advanced below on the basis that it was in any way dependent on a finding of foreseeability of physical damage to the respondent's stock of lobsters, and so the submission based on inconsistency with the judge's conclusion on liability for economic loss ceased to carry weight.
Attention therefore became concentrated on Mr Stewart's primary line of attack. This ran as follows. The judge found that the respondent's user of the appellants' motors, i.e., incorporated in pumps for use at a fish farm, was reasonably foreseeable by the appellants, who ought therefore reasonably to have foreseen that the pumps would be used for the circulation and oxygenation of water in tanks in which fish were kept. The purpose of such circulation and oxygenation of the water was to keep the fish alive and in good health; and so it must follow that the appellants ought reasonably to have foreseen that, if their motors cut out as they did, physical damage might be caused to fish stored in the respondent's tanks. The judge ought therefore to have concluded that physical damage of the relevant type was reasonably foreseeable by the appellants, irrespective of whether they could have foreseen that the respondent's whole stock of lobsters might be killed.
In answer, it was submitted by Mr Ashworth for the appellants that Mr Stewart's argument was over- simplified. His submission was to the effect that, where apparatus is supplied for the purpose of supporting life, in the present case the lives of fish, in artificial conditions, the question whether a failure of such apparatus is liable to cause physical harm to the fish cannot be considered in isolation without also having regard to the length of time during which fish might be expected to survive unharmed if the apparatus failed and the length of time which they might be expected to be left unattended. If the former were held to be long, and the latter short, it would, he submitted, be a legitimate conclusion that physical harm to the fish by reason of the failure of the apparatus was not reasonably foreseeable; and that what was reasonably foreseeable was only economic loss in the form of, for example, the cost of repairing or replacing the apparatus, labour costs in removing the fish to safety in another storage area, or loss of profits by reason of having to dispose of the fish at a disadvantageous price. Furthermore, he submitted, a conclusion on the point must necessarily be a conclusion of fact, to be made by the judge on the basis of the evidence before him; and we, who have not had the benefit of hearing the evidence, should not interfere with the finding of fact of the judge in the present case.
I approach the matter as follows. First, I feel driven to say, with all respect, that the judge did not pose the correct question when considering this particular point. His finding was in the following terms (at page 23):
"I do not think they [the appellants] could have foreseen the physical damage suffered by the plaintiff, namely the killing of his stock of lobsters".
He was therefore asking himself whether the appellants could have foreseen the physical damage actually suffered by the respondent, viz. the killing of his stock of lobsters. He obviously felt that, having regard to the remarkably short period of time within which, on the evidence before him, a tank-full of lobsters would have died, the damage in fact suffered by the respondent was not foreseeable by the appellants. But, in my judgment, the true question to which the judge -should have addressed his mind was simply whether damage of the relevant type was reasonably foreseeable by the appellants, i.e. physical harm to fish stored in a tank at a fish farm by reason of failure of the circulation and oxygenation pumps through the cutting out of the electric motors driving those pumps. If he had found that damage of that type was reasonably foreseeable, then the fact that, by reason of the full stocking of the relevant tank, the fish died more quickly or in greater quantities was of no relevance, unless it could be said that over-stocking of the tank constituted the sole or a contributory cause of the disaster which took place.
So I am unable to accept the finding of the judge as determinative of the matter. I therefore turn to consider whether this court is able to make, as a necessary inference from the facts found by the judge, the finding that damage of the relevant type was reasonably foreseeable by the appellants.
In my judgment we are able to make that finding. I so conclude because, accepting Mr Stewart's submission, that finding appears to me to follow inevitably from the judge's finding that the appellants were aware that pumps incorporating their motors were being sold for use at fish farms, and his inferential finding that they should have realised that the pumps would be used for circulation and oxygenation of water in tanks where fish were kept. From this it must, in my judgment, follow that the whole purpose of the pumps, if so used, was to preserve the health, and lives, of the fish; and therefore that, if the pumps failed through the motors cutting out, physical harm to the fish was liable to occur.
Let me test the point in this way. Let it be supposed that pumps installed at a fish farm for these purposes cut out; and that a supervisor engaged by the fish farm failed negligently to call at the farm for a week or so with the result that the discovery of the fault was delayed and the fish died in consequence. In such a case there would be two contributory causes of the damage - the failure of the pumps, due to the negligence of the manufacturer, and the failure to attend at the fish, farm, due to the negligence of the supervisor. I cannot see that the former could escape liability on the simple basis that he did not anticipate the negligence of the latter, especially when the purpose for which his goods were to be used was, as he should have appreciated, to preserve the health and lives of the fish. Only where the act or omission of another was of such a nature that it constituted a wholly independent cause of the damage, i.e., a novus actus interveniens, could the manufacturer escape all liability for the damage. There is, however, no question of any such independent cause of the damage to the respondent's stock of lobsters in the present case.
Furthermore, I am unable to accept the submission of Mr Ashworth that we cannot make any finding in the present case because we have not heard the evidence. I cannot conceive of any further evidence which could have been called on the point of foreseeability by the appellants of damage of the relevant type which could have exonerated the appellants from liability, once the Judge had found that the respondent's use of the pumps was within that which the appellants, with the knowledge they had gained from ITT Marlow, ought to have reasonably foreseen. Once that conclusion is reached it must, in my judgment, follow that the appellants ought reasonably to have foreseen that physical damage to the fish was liable to flow from the cutting out of the electric motors in the pumps.
I therefore conclude that the appellants should be held liable to the respondent, not in respect of the whole economic loss suffered by him, but only in respect of the physical damage caused to his stock of lobsters, and of course any financial loss suffered by the respondent in consequence of that physical damage. To that extent,
I would allow the appeal.
LORD JUSTICE NOURSE: I am in complete agreement with the judgment of Lord Justice Robert Goff and find that there is very little which I wish to add.
In his analysis of Junior Books v. Veitchi Co.Ltd. (1983) 1 AC 520 Lord Justice Robert Goff has identified the three features of that case on which the decision that the nominated sub-contractor had voluntarily assumed a direct responsibility to the building owner was founded. The first two of these were very close proximity between the subcontractor and the building owner and reliance by the building owner on the sub-contractor. Having been so decided, that case cannot, in my respectful opinion, be taken to be authority for the proposition that where those features are absent a defendant is liable in tort in respect of economic loss which is not consequent upon physical damage to the person or property of the plaintiff. Where those features are absent, I agree with Lord Justice O'Connor that we remain bound by the decision of this court in Spartan Steel & Alloys Ltd. v. Martin& Co. (Contractors) Ltd. (1973) QB 27. I too regard the recent observations of the Privy Council in Candelwood Navigation Corporation Ltd. v. Mitsui O.S.K. Lines Ltd. as being significant in this respect.
In the present case there was no very close proximity between Leroy Somer and Mr Muirhead. Contractually they were several stages removed from each other. More important, there was no reliance by Mr Muirhead on Leroy Somer in the sense in which that concept was applied in Junior Books. The people on whom Mr Muirhead relied to install the system and to get the right equipment, including pumps with electric motors which worked, were ITS. They were the people who stood in the same factual relationship with Mr Muirhead as the sub-contractor did with the building owner in Junior Books. The two features of very close proximity and reliance having been absent, it is unnecessary to look further in the present case. Mr Moorhead's claim in respect of pure economic loss must fail. I therefore agree that the appeal should be allowed to that extent.
LORD JUSTICE O'CONNER: I agree that this appeal should be allowed to the extent stated by Lord Justice Goff in his judgment, for the reasons given by him. I add a few words of my own as we are differing from the learned judge.
On ample evidence the learned judge found that Leroy Somer knew that their motors were to be used in pumps in the U.K. He found that they knew that the pumps would be used to circulate water in fish farming plants. For the reasons given by Lord Justice Goff I agree that they owed a duty of care to the plaintiffs: Donoghue v.Stevenson. The learned judge was manifestly correct in finding that Leroy Somer were guilty of negligence.
The heads of damage in the statement of claim show that this case is so close to Spartan Steel & Alloys. Ltd. v. Martin & Co. (Contractors) Ltd. (1973) 1 Q.B. 27 that in my judgment it should not be distinguished from that case, until it is overruled we are bound by it. The defendants negligently cut the electricity to the plaintiffs' factory, a batch of metal in the furnace was damaged, and they were unable to process four further batches. By a majority this court held that they were entitled to recover the value of the damaged batch, and the consequential loss of profit thereon, but could not recover the loss of profit on the lost batches.
I do not attempt any analysis of the reasoning in Spartan Steel because in Junior Books Lord Roskill dealt with the case at page 547:
"My Lords, I have not thought it necessary to review all the cases cited in argument. If my conclusion be correct, certain of them can no longer be regarded as good law and others may have to be considered afresh hereafter, for example whether the decision of the majority of the Court of Appeal in Spartan Steel & Alloys Ltd. v. Martin & ,Co". (Contractors; Ltd. (1973) 1 Q.B. 27 is correct or whether the reasoning of Lord Justice Edmund-Davies in his dissenting judgment is to be preferred, and whether the decision of the First Division in Dynamco Ltd. v. Holland & Hannen & Cubitts (Scotland) Ltd. (1971) SC 257, a decision given after Dorset Yacht Co.Ltd. v. Home Office (1970) AC 1004 but before Anns v. Merton London Borough Council (1978) AC 728, but seemingly without reference to the Dorset Yacht case, is correct".
In these circumstances I do not think that it is open to this court to review Spartan Steel on the basis that it has been overruled in Junior Books by necessary implication.
In Candelwood Navigation Corporation Ltd. v. Mitsui O.S.K. Lines Ltd. & Anr. (unreported 1st July 1985 P.C.) Lord Fraser, considering Junior Books, said:
"Finally their Lordships must refer to the recent decision of the House of Lords in an appeal from Scotland Junior Books Ltd. v. Veitchi Co.Ltd. (1983) 1 AC 520, (1962) S.L.T. 492. That case may be regarded as having extended the scope of duty somewhat, but any extension was not in the direction of recognising a title to sue in a party who suffered economic loss because his contract with the victim of the wrong was rendered less profitable or unprofitable. It is therefore not in point here.
"Their Lordships consider, that some limit or control mechanism has to be imposed upon the liability of a wrongdoer towards those who have suffered economic damage in consequence of his negligence. The need for such a limit has been repeatedly asserted in the cases, from Cattle's case to Caltex, and their Lordships are not aware that a view to the contrary has ever been judicially expressed".
On this state of the authorities I am satisfied that the extension made by Junior Books is very limited, and certainly not wide enough to make Leroy Somer liable for the economic loss in this case.
LORD JUSTICE O'CONNOR: The appeal will be allowed for the reasons given in the judgments that have been handed down.
(Appeal allowed, in part; Appellants to have half their costs; leave to appeal to the House of Lords refused; order for payment out of £45,000,plus interest accrued to date, to be paid out to the third defendants' solicitors; balance of £30,000 to remain in court pending assessment of damages).
