COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER DISTRICT REGISTRY
HIS HONOUR JUDGE STEPHEN DAVIES
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE STANLEY BURNTON
LORD JUSTICE JACKSON
| JAMES ANDREW ROBINSON
|- and -
|P.E.JONES (CONTRACTORS) LIMITED
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Mr Martin Budworth (instructed by Freeth Cartwright LLP) for the Respondent
Hearing date : Tuesday 23rd November 2010
Crown Copyright ©
Lord Justice Jackson :
Part 1. Introduction,
Part 2. The Facts,
Part 3. The Present Proceedings,
Part 4. The Appeal to the Court of Appeal,
Part 5. The Law,
Part 6. The Impact of UCTA,
Part 7. Did the Defendant Owe a Relevant Duty of Care in Tort to the Claimant?
Part 8. Conclusion.
"(1) A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.
(2) In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.
(3) Where a contract term or notice purports to exclude or restrict liability for negligence a person's agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk."
"(1) This section applies as between contracting parties where one of them deals as consumer or on the other's written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term
(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or
(b) claim to be entitled
(i) to render a contractual performance substantially different from that which was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all,
except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness."
"(1) In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act, section 3 of the Misrepresentation Act 1967 and section 3 of the Misrepresentation Act (Northern Ireland) 1967 is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.
(3) In relation to a notice (not being a notice having contractual effect), the requirement of reasonableness under this Act is that it should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen."
"1.(a) The Vendor will in an efficient and workmanlike manner complete the work shown on the drawings and specification relative thereto already produced to and made available for inspection by the Purchaser at the offices of the Vendor with such additions variations or omissions as may from time to time be agreed in writing between the parties.
3. Any extra work or variations to the property which the Vendor may agree to carry out at the request of the Purchaser shall be paid for in addition to the sum specified in the Agreement and payment therefore shall be made in full on completion.
8. The Vendor shall not be liable for any defect in or failure or inadequacy of any article item of equipment or fitting supplied to the Vendor by the manufacturer thereof (whether or not personally selected by the Purchaser) which is not within the terms of the Certificate of the National House-Building Council nor for any injury loss or damage arising from any such defect failure or inadequacy.
10. The Vendor and the Purchaser shall forthwith enter in to the National House-Building Council's standard form of Agreement No. HB5 (1986) (or any other standard form in current use at the relevant time for the like purpose) which said standard form is hereinafter called "the N.H.B.C. Agreement". The Vendor shall not be liable to the Purchaser or any successor in title of the Purchaser under the Agreement or any document incorporated therein in respect of any defect error or omission in the execution or the completion of the work save to the extent and for the period that it is liable under the provisions of the N.H.B.C. Agreement on which alone his rights and remedies are founded."
"1. Whether or not the defendant owed a duty of care in tort to the claimant in respect of the matters complained of in the particulars of claim.
2. Whether or not the claimant's claims in contract and/or tort (if any) are statute-barred by reason of the expiry of the relevant periods of limitation prior to proceedings being commenced."
"In principle a builder can owe a duty of care in tort to his client, concurrent with his duty in contract, in relation to economic loss."
"My Lords, I would hold that Anns was wrongly decided as regards the scope of any private law duty of care resting upon local authorities in relation to their function of taking steps to secure compliance with building byelaws or regulations and should be departed from. It follows that Dutton v Bognor Regis Urban District Council  1 Q.B. 373 should be overruled, as should all cases subsequent to Anns which were decided in reliance on it."
"To start with, if such a duty is incumbent upon the local authority, a similar duty must necessarily be incumbent also upon the builder of the house. If the builder of the house is to be so subject, there can be no grounds in logic or in principle for not extending liability upon like grounds to the manufacturer of a chattel. That would open up an exceedingly wide field of claims, involving the introduction of something in the nature of a transmissible warranty of quality. The purchaser of an article who discovered that it suffered from a dangerous defect before that defect had caused any damage would be entitled to recover from the manufacturer the cost of rectifying the defect, and presumably, if the article was not capable of economic repair, the amount of loss sustained through discarding it. Then it would be open to question whether there should not also be a right to recovery where the defect renders the article not dangerous but merely useless. The economic loss in either case would be the same. There would also be a problem where the defect causes the destruction of the article itself, without causing any personal injury or damage to other property. A similar problem could arise, if the Anns principle is to be treated as confined to real property, where a building collapses when unoccupied."
"I believe that these principles are equally applicable to buildings. If a builder erects a structure containing a latent defect which renders it dangerous to persons or property, he will be liable in tort for injury to persons or damage to property resulting from that dangerous defect. But if the defect becomes apparent before any injury or damage has been caused, the loss sustained by the building owner is purely economic. If the defect can be repaired at economic cost, that is the measure of the loss. If the building cannot be repaired, it may have to be abandoned as unfit for occupation and therefore valueless. These economic losses are recoverable if they flow from breach of a relevant contractual duty, but, here again, in the absence of a special relationship of proximity they are not recoverable in tort."
(i) The first defendant had no liability in respect of the cracking in 1983. That was pure economic loss. Pirelli was distinguished because the defendant in that case was a professional firm.
(ii) The first defendant incurred liability in tort for the first time on 27th June 1984 when damage occurred to other property.
(iii) Therefore the plaintiffs' claim was not statute barred.
"But, for present purposes more important, in the instant case liability can, and in my opinion should, be founded squarely on the principle established in Hedley Byrne itself, from which it follows that an assumption of responsibility coupled with the concomitant reliance may give rise to a tortious duty of care irrespective of whether there is a contractual relationship between the parties, and in consequence, unless his contract precludes him from doing so, the plaintiff, who has available to him concurrent remedies in contract and tort, may choose that remedy which appears to him to be the most advantageous."
"It is difficult to disagree with the view that a contract which stipulates that the contracting party will perform certain services involves an assumption of responsibility which will normally be relied upon by the other contracting party. On the other hand it is true that the authorities prior to Henderson v Merrett, and in particular Murphy, did not envisage a builder (or possibly a builder-designer or a pure designer and supervisor of work) owing duties of care in respect of economic loss. This difference of view requires a reconciliation of these two different streams of authority which will have to await a decision from the Court of Appeal or the House of Lords."
(i) Tortious Liability after Murphy
(ii) Assumption of Responsibility
"The case has always been regarded as important in that it established that, in certain circumstances, a duty of care may exist in respect of words as well as deeds, and further that liability may arise in negligence in respect of pure economic loss which is not parasitic upon physical damage. But, perhaps more important for the future development of the law, and certainly more relevant for the purposes of the present case, is the principle upon which the decision was founded."
Lord Goff then went on to identify the governing principle of Hedley Byrne as assumption of responsibility.
(iii) The Relationship between Contract and Tort after Henderson
(i) When A assumes responsibility to B in the Hedley Byrne sense, A comes under a tortious duty to B, which may extend to protecting B against economic loss.
(ii) The existence of a contract between A and B does not prevent such a duty from arising.
(iii) In contracts of professional retainer, there is commonly an assumption of responsibility which generates a duty of care to protect the client against economic loss.
(iv) Application of the above Principles to Building Contracts
Lord Justice Stanley Burnton
If the hidden defect in the chattel is the cause of personal injury or of damage to property other than the chattel itself, the manufacturer is liable. But if the hidden defect is discovered before any such damage is caused, there is no longer any room for the application of the Donoghue v Stevenson principle. The chattel is now defective in quality, but is no longer dangerous. It may be valueless or it may be capable of economic repair . If the same principle applies in the field of real property to the liability of the builder of a permanent structure which is dangerously defective, that liability can only arise if the defect remains hidden until the defective structure causes personal injury or damage to property other than the structure itself. If the defect is discovered before any damage is done, the loss sustained by the owner of the structure, who has to repair or demolish it to avoid a potential source of danger to third parties, would seem to be purely economic
Maurice Kay LJ: