United Kingdom House of Lords Decisions

Parliamentary Archives,
HL/PO/JU/18/250

Murphy (Respondent)

v.
Brentwood District Council (Appellants)

JUDGMENT

Die Jovis 26° Julii 1990

Upon Report from the Appellate Committee to whom was
referred the Cause Murphy against Brentwood District Council,
That the Committee had heard Counsel on Monday the 14th,
Tuesday the 15th, Wednesday the 16th, Tuesday the 17th, Monday
the 21st, Tuesday the 22nd and Wednesday the 23rd days of May
last, upon the Petition and Appeal of Brentwood District
Council of Council Offices, Brentwood, Essex, praying that the
matter of the Order set forth in the Schedule thereto, namely
an Order of Her Majesty's Court of Appeal of the 21st day of
December 1989, might be reviewed before Her Majesty the Queen
in Her Court of Parliament and that the said Order might be
reversed, varied or altered or that the Petitioners might have
such other relief in the premises as to Her Majesty the Queen
in Her Court of Parliament might seem meet; as upon the case
of Thomas Murphy lodged in answer to the said Appeal; and due
consideration had this day of what was offered on either side
in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the said Order of Her Majesty's Court of
Appeal of the 21st day of December 1989 complained of in the
said Appeal be, and the same is hereby, Set Aside and that the
Order o£ His Honour Judge Esyr Lewis of the 25th day of
February 1988 be and the same is hereby Set Aside: And it is
further Ordered, That the Respondent do pay or cause to be
paid to the said Appellants the Costs incurred by them in the
Courts below and also the Costs incurred by them in respect of
the said Appeal to this House, the amount of such last-
mentioned Costs to be certified by the Clerk of the
Parliaments if not agreed between the parties: And it is also
further Ordered, That the Cause be, and the same is hereby,
remitted back to the Queen's Bench Division of the High Court
of Justice to do therein as shall be just and consistent with
this Judgment.

Cler: Parliamentor:

Judgment: 26.7.90

HOUSE OF LORDS

MURPHY
(RESPONDENT)

v.

BRENTWOOD DISTRICT COUNCIL
(APPELLANTS)

Lord Chancellor
Lord Keith of Kinkel
Lord Bridge of Harwich
Lord Brandon of Oakbrook
Lord Ackner
Lord Oliver of Aylmerton
Lord Jauncey of Tullichettle




LORD MACKAY OF CLASHFERN L.C.

My Lords,

I have had the advantage of reading in draft the speeches
of my noble and learned friends Lord Keith of Kinkel and Lord
Bridge of Harwich. They have comprehensively analysed the issues
arising in this appeal and in consequence I am able to express my
conclusion briefly.

We are asked to depart from the judgment of this House in
Anns v. Merton London Borough Council [1978] AC 728 under the
practice statement of 1966 (Practice Statement (Judicial
Precedent) [1966] 1 W.L.R. 1234). That decision was taken after
very full consideration by a committee consisting of most eminent
members of this House. In those circumstances I would be very
slow to accede to the suggestion that we should now depart from
it. However, the decision was taken as a preliminary issue of law
and accordingly the facts had not at that stage been examined in
detail and the House proceeded upon the basis of the facts stated
in the pleadings supplemented by such further facts and documents
as had been agreed between the parties. Under the head "Nature
of the damages recoverable and arising of the cause of action"
Lord Wilberforce said, at p. 759:

"There are many questions here which do not directly arise
at this stage and which may never arise as the actions are
tried. But some conclusions are necessary if we are to deal
with the issue as to limitation."

When one attempts to apply the proposition established by the
decision to detailed factual situations difficulties arise and this
was clearly anticipated by Lord Wilberforce when he said, at p.
760:

"We are not concerned at this stage with any issue relating
to remedial action nor are we called upon to decide upon
what the measure of the damages should be; such questions,
possibly very difficult in some cases, will be for the court



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to decide. It is sufficient to say that a cause of action
arises at the point I have indicated."

That point was when damage to the house had occurred resulting
in there being a present or imminent danger to the health or
safety of persons occupying it.

As I read the speech of Lord Wilberforce the cause of
action which he holds could arise in the circumstances of that
case can only do so when damage occurs to the house in question
as a result of the weakness of the foundations and therefore no
cause of action arises before that damage has occurred even if as
a result of information obtained about the fundations it may
become apparent to an owner that such damage is likely.

The person to whom the duty is owed is an owner or
occupier of the house who is such when the damage occurs. And
therefore an owner or occupier who becomes aware of the
possibility of damage arising from a defective foundation would not
be within the class of persons upon whom the right of action is
conferred.

As had been demonstrated in the speeches of my noble and
learned friends, the result of applying these qualifications to
different factual circumstances is to require distinctions to be
made which have no justification on any reasonable principle and
can only be described as capricious. It cannot be right for this
House to leave the law in that state.

Two options call for consideration. The first is to remove
altogether the qualifications on the cause of action which Anns
held to exist. This would be in itself a departure from Anns since
these qualifications are inherent in the decision. The other option
is to go back to the law as it was before Anns was decided and
this would involve also overruling Dutton v. Bognor Regis Urban
District Council [1972] 1 Q.B. 373.

Faced with the choice I am of the opinion that it is
relevant to take into account that Parliament has made provisions
in the Defective Premises Act 1972 imposing on builders and
others undertaking work in the provision of dwellings obligations
relating to the quality of their work and the fitness for habitation
of the dwelling. For this House in its judicial capacity to create
a large new area of responsibility on local authorities in respect of
defective buildings would in my opinion not be a proper exercise
of judicial power. I am confirmed in this view by the
consideration that it is not suggested, and does not appear to have
been suggested in Anns, that the Public Health Act 1936, in
particular Part n, manifests any intention to create statutory
rights in favour of owners or occupiers of premises against the
local authority charged with responsibility under the Act. The
basis of the decision in Anns is that the common law will impose
a duty in the interests of the safety and health of owners and
occupiers of buildings since that was the purpose for which the
Act of 1936 was enacted. While of course I accept that duties at
common law may arise in respect of the exercise of statutory
powers or the discharge of statutory duties I find difficulty in
reconciling a common law duty to take reasonable care that plans
should conform with byelaws or regulations with the statute which



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has imposed on the local authority the duty not to pass plans
unless they comply with the byelaws or regulations and to pass
them if they do.

In these circumstances I have reached the clear conclusion
that the proper exercise of the judicial function requires this
House now to depart from Anns in so far as it affirmed a private
law duty of care to avoid damage to property which causes
present or imminent danger to the health and safety of owners, or
occupiers, resting upon local authorities in relation to their
function of supervising compliance with building byelaws or
regulations, that Dutton v. Bognor Regis Urban District Council
should be overruled and that all decisions subsequent to Anns
which purported to follow it should be overruled. I accordingly
reach the same conclusion as do my noble and learned friends.

I should make it clear that I express no opinion upon the
question whether, if personal injury were suffered by an occupier
of defective premises as a result of a latent defect in those
premises, liability in respect of that personal injury would attach
to a local authority which had been charged with the public law
duty of supervising compliance with the relevant building byelaws
or regulations in respect of a failure properly to carry out such
duty.

LORD KEITH OF KINKEL

My Lords,

This appeal raises directly the question whether Anns v.
Merton London Borough Council [1978] AC 728 was in all respects
correctly decided.

The facts are that over a period ending in 1969 a concern
called ABC Homes constructed an estate of 160 dwelling houses on
a site in Brentwood. Two of these houses, nos. 36 and 38
Vineway, were built over filled ground upon a concrete raft
foundation. The raft was designed by a firm of civil engineers
called Grahame Rudkins Associates. The design, which included
certain steel reinforcement, was submitted to the appellant
council, together with supporting calculations, for approval under
section 64 of the Public Health Act 1936. The council, whose
building control staff did not include any persons qualified to judge
the suitability of the design, sought the advice of independent
consulting engineers, Messrs. S. D. Mayer & Partners. Their
advice was to the effect that the design was appropriate to the
conditions and could properly be approved. The council accordingly
approved it on 1 January 1969. The plaintiff purchased 38,
Vineway from ABC Homes in 1970 and took up residence there.
From 1981 onwards serious cracks started appearing in the internal
walls of the house. In addition, wet patches appeared in the lawn.
The plaintiff dug a hole in front of the house and exposed part of
the foundation raft. He observed a crack in it about three-
quarters of an inch wide at the bottom tapering to nothing at the
top. The plaintiff contacted his insurance company, Norwich
Union, which caused investigations to be made by consulting



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engineers. These revealed that the concrete raft had subsided
differentially, so causing distortion and cracking. In July 1985 the
gas pipe leading to a fire in the living room cracked and was
replaced at a cost of £48. It was found that the soil pipe leading
to the main drain had cracked and was leaking into the
foundations. The plaintiff's neighbour at 36, Vineway also suffered
damage to his house through the settlement, and made a claim on
his insurers. Liability was not accepted, and accordingly the
neighbour was unable to afford any contribution to the cost of
remedial work to the joint structure of the two houses. The
plaintiff's insurers, Norwich Union, were not prepared to pay the
whole cost. The plaintiff therefore decided to sell his house and
move elsewhere. He sold it in July 1986 for £30,000 to a builder
who was aware of the structural defects, and who has since
occupied it with his family without carrying out any remedial
work. The value of the house had it been free from defect was
agreed to have been at the time £65,000. Norwich Union paid the
plaintiff £35,000 in settlement of his claim for subsidence damage.
There was evidence that the cost of remedial work on the
foundations of the house would have been in the region of £45,000.
The damages claimed by the plaintiff against the council, in
proceedings commenced in September 1983, included the sum of
£35,000 and also the sum of £3,631.25 in respect of costs incurred
in selling 38, Vineway and buying a new house and moving there,
£98 for refitting carpets in the new house, and £48 for replacing
the fractured gas pipe.

The case was tried before Judge Esyr Lewis Q.C. as official
referee. He gave judgment on 18 March 1988 awarding the
plaintiff damages of £38,777.25, made up of the four items
mentioned above, together with interest of £7,173.75. In the
course of his judgment he made the following findings: (a) The
design of the concrete raft was defective in that it did not
provide for sufficient steel reinforcement and was therefore
unsuitable for the site. (b) Messrs. Mayer were competent
engineers and the council were entitled to rely on their skill and
experience. (c) Messrs. Mayer were negligent in approving the
design of the concrete raft as suitable for the site, (d) As a
result of its defective design the raft cracked and became
distorted so that differential settlement occurred and cracks were
caused in some walls and a gas pipe and a soil pipe were
fractured, (e) Sporadic and unpredictable settlement of the raft
would occur in the future though the total amount of future
settlement might be small, (f) There was a risk that the main
gas pipe might fracture and that water pipes might also fracture
causing water to leak into electrical fittings. This, together with
leakage of sewage into the foundations from the fractured soil
pipe, constituted an imminent danger to the health and safety of
occupants of the house.

In the light of these findings Judge Esyr Lewis held that the
council were liable to the plaintiff in negligence under the
principle of Anns v. Merton London Borough Council. He further
held that the council's duty to take reasonable care in considering
the suitability of the design of the concrete raft had not been
discharged by obtaining and acting upon the advice of competent
independent consulting engineers. He also decided against the
council a limitation point which is no longer a live issue.

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An appeal by the council to the Court of Appeal was
dismissed by that court (Fox, Ralph Gibson and Nicholls L.JJ.)
[1990] 2 W.L.R. 944 on 21 December 1989. The council now
appeals, with leave given in the Court of Appeal, to your
Lordships' House.

Both Judge Esyr Lewis and the Court of Appeal proceeded
on the basis that the plaintiff had a good cause of action by
virtue of the decision in Anns. It was held that the diminution in
the value of the plaintiff's house by reason of the state of its
foundations formed an item of damages recoverable in law. Ralph
Gibson L.J. said, at pp. 966-967:

"In this case, upon the facts as the plaintiff contended that
they were on the evidence, the plaintiff's loss on sale as
awarded was substantially less than the cost of eliminating
the danger found by the judge to exist. Full effect is given
to the nature of the cause of action as established in Anns,
and to any limitations necessarily imposed upon that cause
of action by the nature of the statutory purposes of the
[Public Health Act 1936], if the damages awarded are
justified by proof of imminent danger to health and safety,
by proof of the fact that the loss on sale was caused by
the existence of that danger, and proof that the amount
awarded does not exceed the cost of eliminating that
danger."

Before your Lordship's House it was argued on behalf of the
council that Anns was wrongly decided and should be departed
from under the practice statement of 26 July 1966 (Practice
Statement (Judicial Precedent) [1966] 1 W.L.R. 1234). The
speeches of my noble and learned friends Lord Bridge of Harwich
and Lord Oliver of Aylmerton in D. & F. Estates Ltd v. Church
Commissioners for England [1989] AC 177 contain some passages
expressing doubts as to the extent to which the decision in Anns is
capable of being reconciled with pre-existing principle. It is
therefore appropriate to subject the decision to careful
reconsideration.

As is well known, it was held in Anns that a local authority
might be liable in negligence to long lessees occupying maisonettes
built on inadequate foundations not complying with relevant
building regulations, on the ground of failure by the authority to
discover by inspection the inadequacy of the foundations before
they were covered over. The proceedings arose out of the trial of
a preliminary issue as to whether or not the plaintiffs had any
cause of action against the local authority, and the damages
claimed by them were not specified in the pleadings. It appeared,
however, that such damages would include the cost of repairing
cracks in the structure and of underpinning the foundations of the
block of maisonettes.

The leading speech was that of Lord Wilberforce. His
examination of law started with the formulation of the two stage
test of liability in negligence which, though it has since become
very familiar, I venture to quote again [1978] AC 728, 751-752:

'Through the trilogy of cases in this House - Donoghue v.
Stevenson [1932] AC 562, Hedley Byrne & Co. Ltd. v.



- 5 -

Heller & Partners Ltd. [1964] AC 465, and Dorset Yacht
Co. Ltd. v. Home Office [1970] AC 1004, the position has
now been reached that in order to establish that a duty of
care arises in a particular situation, it is not necessary to
bring the facts of that situation within those of previous
situations in which a duty of care has been held to exist.
Rather the question has to be approached in two stages.
First one has to ask whether, as between the alleged
wrongdoer and the person who has suffered damage there is
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.
Secondly, if the first question is answered affirmatively, it
is necessary to consider whether there are any
considerations 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 of it may give rise:
see Dorset Yacht case [1970] AC 1004, per Lord Reid at
p. 1027. Examples of this are Hedley Byrne's case [1964]
A.C. 465 where the class of potential plaintiffs was reduced
to those shown to have relied upon the correctness of
statements made, and Weller & Co. v. Foot and Mouth
Disease Research Institute [1966] 1 Q.B. 569; and (I cite
these merely as illustrations, without discussion) cases about
"economic loss" where, a duty having been held to exist, the
nature of the recoverable damages was limited: see S.C.M.
(United Kingdom) Ltd. v. W. J. Whittall & Son Ltd. [1971] 1
Q.B. 337 and Spartan Steel & Alloys Ltd. v. Martin & Co.
(Contractors) Ltd. [1973] QB 27."

I observe at this point that the two-stage test has not been
accepted as stating a universally applicable principle. Reservations
about it were expressed by myself in Governors of the Peabody
Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985] A.C.
210, 240, by Lord Brandon of Oakbrook in Leigh and Sillavan Ltd.
v. Aliakmon Shipping Co. Ltd. [1986] AC 785, 815 and by Lord
Bridge of Harwich in Curran v. Northern Ireland Co-ownership
Housing Association Ltd. [1987] A.C. 718. In Council of the Shire
of Sutherland v. Heyman (1985) 157 C.L.R. 424, where the High
Court of Australia declined to follow Anns, Brennan J. expressed
his disagreement with Lord Wilberforce's approach, saying, at p.
481:

"It is preferable, in my view, that the law should develop
novel categories of negligence incrementally and by analogy
with established categories, rather than by a massive
extension of a prima facie duty of care restrained only by
indefinable 'considerations which ought to negative, or to
reduce or limit the scope of the duty or the class of person
to whom it is owed.'"

In the Privy Council case of Yuen Kun Yeu v. Attorney-
General of Hong Kong [1988] A.C. 175, 191 that passage was
quoted with approval and it was said, at p. 194:

"In view of the direction in which the law has since been
developing, their Lordships consider that for the future it
should be recognised that the two-stage test ... is not to



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be regarded as in all circumstances a suitable guide to the
existence of a duty of care."

Finally, in Yuen Kun Yeu 193, and in Hill v. Chief
Constable of West Yorkshire [1989] AC 53, 63, I expressed the
opinion, concurred in by the other members of the House who
participated in the decisions, that the second stage of the test
only came into play where some particular consideration of public
policy excluded any duty of care. As regards the ingredients
necessary to establish such a duty in novel situations, I consider
that an incremental approach on the lines indicated by Brennan J.
in the Shire of Sutherland case is to be preferred to the two-stage
test.

Lord Wilberforce thereafter went on to consider the
purposes of the Act of 1936, to hold that the local authority were
under a duty to give proper consideration to the question whether
they should inspect or not and to hold further that in relation to
an inspection which it was decided to make there was a duty to
exercise reasonable care in making it. Having considered East
Suffolk Rivers Catchment Board v. Kent [1941] AC 74 and Dorset
Yacht Co. Ltd. v. Home Office [1970] AC 1004, he continued, at
p. 758:

"To whom the duty is owed. There is, in my opinion,
no difficulty about this. A reasonable man in the position
of the inspector must realise that if the foundations are
covered in without adequate depth or strength as required
by the byelaws, injury to safety or health may be suffered
by owners or occupiers of the house. The duty is owed to
them - not of course to a negligent building owner, the
source of his own loss. I would leave open the case of
users, who might themselves have a remedy against the
occupier under the Occupiers' Liability Act 1957. A right
of action can only be conferred upon an owner or occupier,
who is such when the damage occurs (see below). This
disposes of the possible objection that an endless,
indeterminate class of potential plaintiffs may be called into
existence.

"The nature of the duty. This must be related
closely to the purpose for which powers of inspection are
granted, namely, to secure compliance with the byelaws.
The duty is to take reasonable care, no more, no less, to
secure that the builder does not cover in foundations which
do not comply with byelaw requirements. The allegations in
the statements of claim, in so far as they are based upon
non-compliance with the plans, are misconceived."

Lord Wilberforce went on, at pp. 758-759, to consider the
position of the builder, upon the view that it would be
unreasonable to impose liability in respect of defective foundations
upon the council if the builder, whose primary fault it was, should
be immune from liability. This consideration was, I think, a
necessary part of the reasoning which led to his conclusion about
the liability of the local authority. The Dorset Yacht case, upon
which Lord Wilberforce was proceeding, was concerned with the
liability of prison officers for failing to take reasonable care to
prevent the Borstal boys in their charge from acting tortiously



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towards the owners of yachts moored in the vicinity of their
encampment. If the conduct of the boys had not been tortious
there would have been no liability on the prison officers. So,
likewise, if the builder of defective foundations had been under no
liability in tort, the local authority could have been under no
liability for not taking reasonable care to see that he did not
construct defective foundations. Lord Wilberforce took the view
that the principle of Donoghue v. Stevenson [1932] AC 562
applied to the builder of defective premises, there being no sound
reason why that principle should be limited to defective chattels.

I see no reason to doubt that the principle of Donoghue v.
Stevenson does indeed apply so as to place the builder of premises
under a duty to take reasonable care to avoid injury through
defects in the premises to the person or property of those whom
he should have in contemplation as likely to suffer such injury if
care is not taken. But it is against injury through latent defects
that the duty exists to guard. I shall consider this aspect more
fully later.

Lord Wilberforce went on, at pp. 759-760:

"Nature of the damages recoverable and arising of the
cause of action. There are many questions here which do
not directly arise at this stage and which may never arise if
the actions are tried. But some conclusions are necessary if
we are to deal with the issue as to limitation. The
damages recoverable include all those which foreseeably
arise from the breach of the duty of care which, as regards
the council, I have held to be a duty to take reasonable
care to secure compliance with the byelaws. Subject always
to adequate proof of causation, these damages may include
damages for personal injury and damage to property. In my
opinion they may also include damage to the dwelling house
itself; for the whole purpose of the byelaws in requiring
foundations to be of a certain standard is to prevent
damage arising from weakness of the foundations which is
certain to endanger the health or safety of occupants.

"To allow recovery for such damage to the house
follows, in my opinion, from normal principle. If
classification is required, the relevant damage is in my
opinion material, physical damage, and what is recoverable
is the amount of expenditure necessary to restore the
dwelling to a condition in which it is no longer a danger to
the health or safety of persons occupying and possibly
(depending on the circumstances) expenses arising from
necessary displacement. On the question of damages
generally I have derived much assistance from the judgment
(dissenting on this point, but of strong persuasive force) of
Laskin J. in the Canadian Supreme Court case of Rivtow
Marine Ltd. v. Washington Iron Works [1973] 6 W.W.R. 692,
715 and from the judgments of the New Zealand Court of
Appeal (furnished by courtesy of that court) in Bowen v.
Paramount Builders (Hamilton) Ltd.[1975] 2 N.Z.L.R. 546.

"When does the cause of action arise? We can leave
aside cases of personal injury or damage to other property
as presenting no difficulty. It is only the damage for the



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house which requires consideration. In my respectful opinion
the Court of Appeal was right when, in Sparham-Souter v.
Town and Country Developments (Essex) Ltd. [1976] Q.B. 858
it abjured the view that the cause of action arose
immediately upon delivery, i.e., conveyance of the defective
house. It can only arise when the state of the building is
such that there is present or imminent danger to the health
or safety of persons occupying it. We are not concerned at
this stage with any issue relating to remedial action nor are
we called upon to decide upon what the measure of the
damages should be; such questions, possibly very difficult in
some cases, will be for the court to decide. It is sufficient
to say that a cause of action arises at the point I have
indicated."

Counsel for the council did not seek to argue that a local
authority owes no duty at all to persons who might suffer injury
through a failure to take reasonable care to secure compliance
with building byelaws. He was content to accept that such a duty
existed but maintained that its scope did not extend beyond injury
to person or health and (possibly) damage to property other than
the defective building itself. Not having heard argument upon the
matter, I prefer to reserve my opinion on the question whether
any duty at all exists. So far as I am aware, there has not yet
been any case of claims against a local authority based on injury
to person or health through a failure to secure compliance with
building byelaws. If and when such a case arises, that question
may require further consideration. The present problem is
concerned with the scope of the duty. The question is whether
the appellant council owed the respondent a duty to take
reasonable care to safeguard him against the particular kind of
damage which he has in fact suffered, which was not injury to
person or health nor damage to anything other than the defective
house itself (see Overseas Tankship (U.K.) Ltd. v. Morts Dock and
Engineering Co. Ltd., (The Wagon Mound) [1961]) A.C. 388, 425,
per Viscount Simonds: Caparo Industries Plc, v. Dickman [1990] 2
W.L.R. 358, 373, 396 per Lord Bridge of Harwich and Lord Oliver
of Aylmerton, quoting the judgment of Brennan J. in the Shire of
Sutherland case; 157 C.L.R. 424, 487). 60 A.L.R. 1, 48.

Lord Wilberforce, in the passage last quoted from his speech
in Anns, does not devote precise consideration to the scope of the
duty owed by a local authority as regards securing compliance with
building byelaws. The question whether recovery could be allowed
for damage to the house and for the cost putting it in such a
state as to be no longer a danger to health or safety was treated
in the context of the measure of damages and the answer was said
to follow from normal principle. It appears that the normal
principle concerned was that which emerged from Donoghue v.
Stevenson, as extended to the sphere of statutory functions of
public bodies in Dorset Yacht Co. Ltd. v. Home Office. However,
an essential feature of the species of liability in negligence
established by Donoghue v. Stevenson was that the carelessly
manufactured -product should be intended to reach the injured
consumer in the same state as that in which it was put up with
no reasonable prospect of intermediate examination (see per Lord
Atkin, at p. 599; also Grant v. Australian Knitting Mills Ltd.
[1936] AC 85, per Lord Wright, at pp. 103-105). It is the latency
of the defect which constitutes the mischief. There may be room



- 9 -

for disputation as to whether the likelihood of intermediate
examination and consequent actual discovery of the defect has the
effect of negativing a duty of care or of breaking the chain of
causation (compare Farr v. Butters Brothers & Co. [1932] 2 K.B.
606 with Denny v. Supplies & Transport Co. Ltd. [1950] 2 K.B.
374). But there can be no doubt that, whatever the rationale, a
person who is injured through consuming or using a product of the
defective nature of which he is well aware has no remedy against
the manufacturer. In the case of a building, it is right to accept
that a careless builder is liable, on the principle of Donoghue v.
Stevenson, where a latent defect results in physical injury to
anyone, whether owner, occupier, visitor or passer-by, or to the
property of any such person. But that principle is not apt to
bring home liability towards an occupier who knows the full extent
of the defect yet continues to occupy the building. The Dorset
Yacht case was concerned with the circumstances under which one
person might come under a duty to another to take reasonable
care to prevent a third party from committing a tort against that
other. So the case had affinities with Anns where a local
authority was held to be under a duty to take reasonable care to
prevent a builder from causing damage through carelessness to
subsequent occupiers of houses built by him. In Dorset Yacht,
however, the damage caused was physical damage to property, and,
as I explained in Hill v. Chief Constable of West Yorkshire [1989]
A.C. 53, 61, the prison officers in charge of the Borstal boys had
created a potential situation of danger for the owners of yachts
moored in the vicinity of the encampment by bringing the boys
into that locality. No such feature was present in Anns.

In Anns the House of Lords approved, subject to explanation,
the decision of the Court of Appeal in Dutton v. Bognor Regis
Urban District Council [1972] 1 Q.B. 373. In that case Lord
Denning M.R. said, at p. 396:

"Mr Tapp [for the council] submitted that the liability of
the council would, in any case, be limited to those who
suffered bodily harm: and did not extend to those who only
suffered economic loss. He suggested, therefore, that
although the council might be liable if the ceiling fell down
and injured a visitor, they would not be liable simply
because the house was diminished in value. ... I cannot
accept this submission. The damage done here was not
solely economic loss. It was physical damage to the house.
If Mr Tapp's submission were right, it would mean that if
the inspector negligently passes the house as properly built
and it collapses and injures a person, the council are liable:
but if the owner discovers the defect in time to repair it -
and he does repair it - the council are not liable. That is
an impossible distinction. They are liable in either case. I
would say the same about the manufacturer of an article.
If he makes it negligently, with a latent defect (so that it
breaks to pieces and injures someone), he is undoubtedly
liable. Suppose that the defect is discovered in time to
prevent the injury. Surely he is liable for the cost of
repair."

The jump which is here made from liability under the Donoghue v.
Stevenson principle for damage to person or property caused by a
latent defect in a carelessly manufactured article to liability for



- 10 -

the cost of rectifying a defect in such an article which is ex
hypothesi no longer latent is difficult to accept. As Stamp L.J.
recognised in the same case, at pp. 414-415, there is no liability
in tort upon a manufacturer towards the purchaser from a retailer
of an article which turns out to be useless or valueless through
defects due to careless manufacture. The loss is economic. It is
difficult to draw a distinction in principle between an article
which is useless or valueless and one which suffers from a defect
which would render it dangerous in use but which is discovered by
the purchaser in time to avert any possibility of injury. The
purchaser may incur expense in putting right the defect, or, more
probably, discard the article. In either case the loss is purely
economic. Stamp L.J. appears to have taken the view that in the
case of a house the builder would not be liable to a purchaser
where the defect was discovered in time to prevent injury but that
a local authority which had failed to discover the defect by
careful inspection during the course of construction was so liable.

Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B.
554 was a case where a house which suffered no defects of
construction had been built on land subject to the danger of
slippage. A landslip carried away part of the garden but there
was no damage to the house itself. Due to the prospect, however,
that at some future time the house might be completely carried
away, it was rendered valueless. There was no possibility of
remedial works such as might save the house from being carried
away. The Court of Appeal allowed recovery in tort against the
builder of damages based on loss of the value of the house. That
again was purely economic loss.

Consideration of the nature of the loss suffered in this
category of cases is closely tied up with the question of when the
cause of action arises. Lord Wilberforce in Anns [1978] AC 728,
760 as regarded it as arising when the state of the building is
such that there is present an imminent danger to the health or
safety of persons occupying it. That state of affairs may exist
when there is no actual physical damage to the building itself,
though Lord Wilberforce had earlier referred to the relevant
damage being material physical damage. So his meaning may have
been that there must be a concurrence of material physical
damage and also present or imminent danger to the health or
safety of occupants. On that view there would be no cause of
action where the building had suffered no damage (or possibly,
having regard to the word "material," only very slight damage) but
a structural survey had revealed an underlying defect, presenting
imminent danger. Such a discovery would inevitably cause a fall
in the value of the building, resulting in economic loss to the
owner. That such is the nature of the loss is made clear in cases
where the owner abandons the building as incapable of being put in
a safe condition (as in Batty), or where he choses to sell it at the
lower value rather than undertake remedial works. In Pirelli
General Cable Works Ltd. v. Oscar Faber & Partners [1983] 2 A.C.
1 it was held that the cause of action in tort against consulting
engineers who had negligently approved a defective design for a
chimney arose when damage to the chimney caused by the
defective design first occurred, not when the damage was
discovered or with reasonable diligence might have been
discovered. The defendants there had in relation to the design
been in contractual relations with the plaintiffs, but it was



- 11 -

^:

common ground that a claim in contract was time-barred. If the
plaintiffs had happened to discover the defect before any damage
had occurred there would seem to be no good reason for holding
that they would not have had a cause of action in tort at that
stage, without having to wait until some damage had occurred.
They would have suffered economic loss through having a defective
chimney upon which they required to expend money for the
purpose of removing the defect. It would seem that in a case
such as Pirelli where the tortious liability arose out of a
contractual relationship with professional people, the duty extended
to take reasonable care not to cause economic loss to the client
by the advice given. The plaintiffs built the chimney as they did
in reliance on that advice. The case would accordingly fall within
the principle of Medley Byrne & Co. Ltd. v. Heller & Partners
Ltd. [1964] AC 465. I regard Junior Books Ltd. v. Veitchi Co.
Ltd. [1983] 1 AC 520 as being an application of that principle.

In my opinion it must now be recognised that, although the
damage in Anns was characterised as physical damage by Lord
Wilberforce, it was purely economic loss. In Council of the Shire
of Sutherland v. Heyman, 157 C.L.R. 424 where, as observed
above, the High Court of Australia declined to follow Anns when
dealing with a claim against a local authority in respect of a
defectively constructed house, Deane J. said, at pp. 503-505:

"Nor is the respondents' claim in the present case for
ordinary physical damage to themselves or their property.
Their claim, as now crystallized, is not in respect of
damage to the fabric of the house or to other property
caused by collapse or subsidence of the house as a result of
the inadequate foundations. It is for the loss or damage
represented by the actual inadequacy of the foundations,
that is to say, it is for the cost of remedying a structural
defect in their property which already existed at the time
when they acquired it. In Anns v. Merton London Borough
Council [1978] AC 728, it was held by the House of Lords
that a local government authority owed a relevant duty of
care, in respect of inspection of the foundations of a
building, to persons who subsequently became long term
lessees (either as original lessees or as assignees) of parts of
the building. Lord Wilberforce, at p. 759, in a speech with
which three of the other four members of the House of
Lords agreed, expressed the conclusion that the appropriate
classification of damage sustained by the lessees by reason
of the inadequacy of the foundations of the completed
building was 'material, physical damage, and what is
recoverable is the amount of expenditure necessary to
restore the dwelling to a condition in which it is no longer
a danger to the health or safety of persons occupying and
possibly (depending on the circumstances) expenses arising
from necessary displacement.' While, in a case where a
subsequent purchaser or long term tenant reasonably elects
to retain the premises and to reinforce the foundations, one
possible measure of the damages involved in the actual
inadequacy would (if such damages were recoverable) be that
suggested by his Lordship, I respectfully disagree with the
classification of the loss sustained in such circumstances as
'material, physical damage.' Whatever may be the position
with respect to consequential damage to the fabric of the



- 12 -

building or to other property caused by susequent collapse or
subsidence, the loss or Injury involved in the actual
inadequacy of . the foundations cannot, in the case of a
person who purchased or leased the property after the
inadequacy existed but before it was known or manifest,
properly be seen as ordinary physical or material damage.
The only property which could be said to have been
damaged in such a case is the building. The building itself
could not be said to have been subjected to "material,
physical damage" by reason merely of the inadequacy of its
foundations since the building never existed otherwise than
with its foundations in that state. Moreover, even if the
inadequacy of the foundations could be seen as material,
physical damage to the building, it would be damage to
property in which a future purchaser or tenant had no
interest at all at the time when it occurred. Loss or injury
could only be sustained by such a purchaser or tenant on or
after the acquisition of the freehold or leasehold estate
without knowledge of the faulty foundations. It is arguable
that any such loss or injury should be seen as being
sustained at the time of acquisition when, because of
ignorance of the inadequacy of the foundations, a higher
price is paid (or a higher rent is agreed to be paid) than is
warranted by the intrinsic worth of the freehold or leasehold
estate that is being acquired. Militating against that
approach is the consideration that, for so long as the
inadequacy of the foundations is neither known nor manifest,
no identifiable loss has come home: if the purchaser or
tenant sells the freehold or leasehold estate within that
time, he or she will sustain no loss by reason of the
inadequacy of the foundations. The alternative, and in my
view preferable, approach is that any loss or injury involved
in the actual inadequacy of the foundations is sustained only
at the time when that inadequacy is first known or
manifest. It is only then that the actual diminution in the
market value of the premises occurs. On either approach,
however, any loss involved in the actual inadequacy of the
foundations by a person who acquires an interest in the
premises after the building has been completed is merely
economic in its nature."

I find myself in respectful agreement with the reasoning
contained in this passage, which seems to me to be
incontrovertible.

It being recognised that the nature of the loss held to be
recoverable in Anns was pure economic loss, the next point for
examination is whether the avoidance of loss of that nature fell
within the scope of any duty of care owed to the plaintiffs by the
local authority. On the basis of the law as it stood at the time
of the decision the answer to that question must be in the
negative. The right to recover for pure economic loss, not flowing
from physical injury, did not then extend beyond the situation
where the Joss had been sustained through reliance on negligent
mis-statements, as in Hedley Byrne. There is room for the view
that an exception is to be found in The Greystoke Castle [1947]
A.C. 265. That case, which was decided by a narrow majority,
may, however, be regarded as turning on specialties of maritime
Jaw concerned in the relationship of joint adventurers at sea.



- 13 -

Further, though the purposes of the Act of 1936 as regards
securing compliance with building byelaws covered the avoidance of
injury to the safety or health of inhabitants of houses and of
members of the public generally, these purposes did not cover the
avoidance of pure economic loss to owners of buildings (see
Governors of the Peabody Donation Fund v. Sir Lindsay Parkinson
& Co. Ltd. [1985] AC 210, 241). Upon analysis, the nature of
the duty held by Anns to be incumbent upon the local authority
went very much further than a duty to take reasonable care to
prevent injury to safety or health. The duty held to exist may be
formulated as one to take reasonable care to avoid putting a
future inhabitant owner of a house in a position in which he is
threatened, by reason of a defect in the house, with avoidable
physical injury to person or health and is obliged, in order to
continue to occupy the house without suffering such injury, to
expend money for the purpose of rectifying the defect.

The existence of a duty of that nature should not, in my
opinion, be affirmed without a careful examination of the
implications of such affirmation. 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 grounds in logic or in
principle for not extending liability upon like grounds to the
manufacturer of a chattel. That would open on 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.

In America the courts have developed the view that in the
case of chattels damage to the chattel itself resulting from
careless manufacture does not give a cause of action in negligence
or in product liability. Thus in East River Steamship Corporation
v. Transamerica Delaval Inc. (1986) 106 S.Ct. 2295 charterers of a
supertanker were denied recovery on either of these grounds,
against the manufacturers of turbines which had suffered damage
through design or manufacturing defect and which had had to be
replaced. Blackmun J. delivering the judgment of the Supreme
Court expressed the opinion, at pp. 2302-2304, that a claim of this
character fell properly into the sphere of warranty under contract
law. This judgment was followed by the United States Court of
Appeals, Third Circuit, in Aloe Coal Co. v. Clark Equipment Co.
(1987) 816 F.2d 110, where recovery in negligence was refused in
respect of damage to a tractor shovel which caught fire and was
destroyed, allegedly due to careless manufacture. The view of
these courts is in line with the dissenting judgment of Lord
Brandon of Oakbrook in Junior Books Ltd. v. Veitchi Co. Ltd.
[1983] 1 AC 520.

- 14 -

These American cases would appear to destroy the authority
of the earlier decision in Quackenbush v. Ford Motor Co. (1915)
153 N.Y.S. 131 founded on by the New Zealand Court of Appeal in
Bowen v. Paramount Builders (Hamilton) Ltd. [1977] 1 N.Z.L.R.
394. from which Lord Wilberforce in Anns [1978] AC 728, 759-760
said he had derived assistance. He referred similarly to the
dissenting judgment of Laskin J. in the Canadian Supreme Court
case of Rivtow Marine Ltd. v. Washington Iron Works [1973] 6
W.W.R. 692, 715. That was a case where a crane installed on the
plaintiffs' barge was revealed as being dangerously defective as a
result of a similar crane having collapsed and killed a man while
being operated elsewhere. The manufacturers and the suppliers
were aware of this occurrence but delayed considerably in warning
the plaintiffs so that they were placed under the necessity of
taking the crane out of service for rectification at the height of
the logging season instead of in the slack season. The majority of
the Supreme Court held the manufacturers and suppliers liable for
the loss of profit sustained by the plaintiffs through not having
been given earlier warning of the defect. This was upon the
Hedley Byrne principle. They did not allow recovery for the cost
of putting right the defect. The minority, Laskin and Hall JJ.,
were in favour of allowing recovery of that cost. For my part, I
consider that the decision of the majority was correct. The
defect in the crane was discovered before it had done any damage,
so that there could be no question of application of the Donoghue
v. Stevenson [1932] AC 562 principle. The cost of rectifying the
defect was incurred for the purpose of enabling the crane to be
profitably operated. The danger of injury from the defect, once it
was known, could have been averted simply by laying up the crane.
The loss was purely economic.




In D. & F. Estates Ltd. v. Church Commissioners for
England [1989] AC 177 both Lord Bridge of Harwich and Lord
Oliver of Aylmerton expressed themselves as having difficulty in
reconciling the decision in Anns with pre-existing principle and as
being uncertain as to the nature and scope of such new principle
as it introduced. Lord Bridge, at p. 206, suggested that in the
case of a complex structure such as a building one element of the
structure might be regarded for Donoghue v. Stevenson purposes as
distinct from another element, so that damage to one part of the
structure caused by a hidden defect in another part might qualify
to be treated as damage to "other property." I think that it
would be unrealistic to take this view as regards a building the
whole of which had been erected and equipped by the same
contractor. In that situation the whole package provided by the
contractor would, in my opinion, fall to be regarded as one unit
rendered unsound as such by a defect in the particular part. On
the other hand where, for example, the electric wiring had been
installed by a subcontractor and due to a defect caused by lack of
care a fire occurred which destroyed the building, it might not be
stretching ordinary principles too far to hold the electrical
subcontractor liable for the damage. If in the East River case the
defective turbine had caused the loss of the ship the manufacturer
of it could consistently with normal principles, I would think,
properly have been held liable for that loss. But even if Lord
Bridge's theory were to be held acceptable, it would not seem to
extend to the founding of liability upon a local authority,
considering that the purposes of the Act of 1936 are concerned



- 15 -

with averting danger to health and safety, not danger or damage
to property. Further, it would not cover the situation which might
arise through discovery, before any damage had occurred, of a
defect likely to give rise to damage in the future.

Liability under the Anns decision is postulated upon the
existence of a present or imminent danger to health or safety.
But considering that the loss involved in incurring expenditure to
avert the danger is pure economic loss, there would seem to be no
logic in confining the remedy to cases where such danger exists.
There is likewise no logic in confining it to cases where some
damage (perhaps comparatively slight) has been caused to the
building, but refusing it where the existence of the danger has
come to light in some other way, for example through a structural
survey which happens to have been carried out, or where the
danger inherent in some particular component or material has been
revealed through failure in some other building. Then there is the
question whether the remedy is available where the defect is
rectified, not in order to avert danger to an inhabitant occupier
himself, but in order to enable an occupier, who may be a
corporation, to continue to occupy the building through its
employees without putting those employees at risk.

In my opinion it is clear that Anns did not proceed upon
any basis of established principle, but introduced a new species of
liability governed by a principle indeterminate in character but
having the potentiality of covering a wide range of situations,
involving chattels as well as real property, in which it had never
hitherto been thought that the law of negligence had any proper
place.

The practice statement of 26 July 1966 (Practice Statement
(Judicial Precedent) [1966] 1 W.L.R. 1234) leaves it open to this
House to depart from a previous decision of its own if it so
chooses. In Reg. v. National Insurance Commmissioner, Ex parte
Hudson [1972] A.C. 944, 966 Lord Reid said:

"The old view was that any departure from rigid adherences
to precedent would weaken [the certainty of the law]. I did
not and do not accept that view. It is notorious that where
an existing decision is disapproved but cannot be overruled
courts tend to distinguish it on inadequate grounds. I do
not think that they act wrongly in so doing: they are only
adopting the less bad of the only alternatives open to them.
But this is bound to add to uncertainty for no one can say
in advance whether in a particular case the court will or
will not feel bound to follow the old unsatisfactory decision.
On balance it seems to me that overruling such a decision
will promote and not impair the certainty of the law."

In my opinion there can be no doubt that Anns has for long
been widely regarded as an unsatisfactory decision. In relation to
the scope of the duty owed by a local authority it proceeded upon
what must, with due respect to its source, be regarded as a
somewhat superficial examination of principle and there has been
extreme difficulty, highlighted most recently by the speeches in D.
& F. Estates, in ascertaining upon exactly what basis of principle
it did proceed. I think it must now be recognized that it did not
proceed on any basis of principle at all, but constituted a



- 16 -

remarkable example of judicial legislation. It has engendered a
vast spate of litigation, and each of the cases in the field which
have reached this House has been distinguished. Others have been
distinguished in the Court of Appeal. The result has been to keep
the effect of the decision within reasonable bounds, but that has
been achieved only by applying strictly the words of Lord
Wilberforce and by refusing to accept the logical implications of
the decision itself. These logical implications show that the case
properly considered has potentiality for collision with long-
established principles regarding liability in the tort of negligence
for economic loss. There can be no doubt that to depart from the
decision would re-establish a degree of certainty in this field of
law which it has done a remarkable amount to upset.

So far as policy considerations are concerned, it is no doubt
the case that extending the scope of the tort of negligence may
tend to inhibit carelessness and improve standards of manufacture
and construction. On the other hand, overkill may present its own
disadvantages, as was remarked in Rowling v. Takaro Properties
Ltd. [1988] AC 473, 502. There may be room for the view that
Anns-type liability will tend to encourage owners of buildings found
to be dangerous to repair rather than run the risk of injury. The
owner may, however, and perhaps quite often does, prefer to sell
the building at its diminished value, as happened in the present
case.

It must, of course, be kept in mind that the decision has
stood for some 13 years. On the other hand, it is not a decision
of the type that is to a significant extent taken into account by
citizens or indeed local authorities in ordering their affairs. No
doubt its existence results in local authorities having to pay
increased insurance premiums, but to be relieved of that necessity
would be to their advantage, not to their detriment. To overrule
it is unlikely to result in significantly incurred insurance premiums
for householders. It is perhaps of some significance that most
litigation involving the decision consists in contests between
insurance companies, as is largely the position in the present case.
The decision is capable of being regarded as affording a measure
of justice, but as against that the impossibility of finding any
coherent and logically based doctrine behind it is calculated to put
the law of negligence into a state of confusion defying rational
analysis. It is also material that Anns has the effect of imposing
upon builders generally a liability going far beyond that which
Parliament thought fit to impose upon house builders alone by the
Defective Premises Act 1972, a statute very material to the policy
of the decision but not adverted to in it. There is much to be
said for the view that in what is essentially a consumer protection
field, as was observed by Lord Bridge of Harwich in D. & F.
Estates, at p. 207, the precise extent and limits of the liabilities
which in the public interest should be imposed upon builders and
local authorities are best left to the legislature.

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 [1972] 1 Q.B. 373 should be overruled, as should
all cases subsequent to Anns which were decided in reliance on it.



- 17 -

In the circumstances I do not consider it necessary to deal
with the question whether, assuming that the council were under a
duty of the scope contended for by the plaintiff, they discharged
that duty by acting on the advice of competent consulting
engineers.

My Lords, for these reasons I would allow the appeal.

LORD BRIDGE OF HARWICH

My Lords,

The speech of my noble and learned friend Lord Keith of
Kinkel addresses comprehensively all the issues on which the
outcome of this appeal depends. I find myself in full agreement
with it and would not think it necessary to say more if we were
not proposing to take the important step of departing, under the
practice statement of 1966 (Practice Statement (Judicial
Precedent) [1966] 1 W.L.R. 1234, from propositions of law laid
down by this House in Anns v. Merton Borough London Council
[1978] AC 728, which have had a profound influence throughout
the common law world. In the circumstances I think it right to
explain in my own words, as briefly as I may, my reasons for
thinking it right to take that step.

The origin of the Anns doctrine

The Anns doctrine, expressed in its most general form, holds
a local authority which exercises statutory control over building
operations liable in tort to a building owner or occupier for the
cost of remedying a dangerous defect in a building which results
from the negligent failure by the authority to ensure that the
building was erected in conformity with applicable standards
prescribed by building byelaws or regulations. The liability arises
not from the breach of any statutory duty, but from the breach of
a common law duty of care said to arise from the performance of
the statutory functions. The doctrine, as propounded in the speech
of Lord Wilberforce in this House, was, with some modifications,
an adoption of principles of law first enunciated by the Court of
Appeal in Dutton v. Bognor Regis Urban District Council [1972] 1
Q.B. 373. That decision was certainly without precedent and was,
I think, widely regarded as judicial legislation. If one reads the
passage in the judgment of Lord Denning M.R., at pp. 397-398,
under the rubric "Policy," it is difficult to think that he would
have demurred to that criticism.

Development of the Anns doctrine in the Commonwealth

The doctrine arises from statutory provisions of a kind to be
found in any developed society. The relevant statutes which
operate in various Commonwealth jurisdictions differ in detail but
have sufficient in common in their general structure and operation
to make it legitimate and instructive to compare the fate of the
Anns doctrine in those jurisdictions. The High Court of Australia
declined to follow Anns in Council of the Shire of Sutherland v.
Heyman. 157 C.L.R. 424. In Canada and New Zealand, however,
the Anns doctrine has been both followed and further developed.



- 18 -

In City of Kamloops v. Nielsen (1984) 10 D.L.R. (4th) 641, the
Supreme Court of Canada, by a majority of three to two, held the
municipal authority liable in damages in the following
circumstances. When a dwelling house was in course of
construction, the authority discovered that the foundations were
defective. They issued a "stop work" order to prevent further
building until proper foundations had been provided. The builder
and the building owner ignored the order and when the building
was completed the owner went into occupation without the
requisite occupancy permit. Three years later he sold the house
to the plaintiff who, after acquisition, discovered the defects in
the foundation and sued the original owner in fraud and the
authority in negligence. The only fault of the authority was their
failure to take the appropriate legal proceedings to enforce the
"stop work" order or to prevent occupation of the house without
an occupancy permit. They were held liable jointly with the
original owner. The majority of the court held in terms that the
plaintiff was entitled to recover his purely economic loss
represented by the cost of making good the foundations. The
decision of the New Zealand Court of Appeal in Stieller v. Porirua
City Council [1986] 1 N.Z.L.R. 84 is no less striking. In that case
the plaintiffs had bought a house under construction. It was found
in due course that the weather-boards on the exterior of the house
were not of the standard required by the building byelaws. The
court held the local authority liable in damages for their failure to
discover this on inspection notwithstanding that the condition of
the weather-boards never represented in any sense a danger to
persons or property.

The present position in our own jurisdiction

Here, as Lord Keith of Kinkel has pointed out, we have
shown a marked inclination to confine the Anns doctrine within
narrow limits, as in Governors of the Peabody Donation Fund v.
Sir Lindsay Parkinson & Co. Ltd. [1985] AC 210 and Curran v.
Northern Ireland Co-ownership Housing Association Ltd. [1987] A.C.
718, and most recently, in examining the liability in tort of a
builder for defects in the quality of a building which presented no
danger, the reasoning of the speeches in D. & F. Estates Ltd. v.
Church Commissioners for England [1989] AC 177 has gone far to
question the principles on which the doctrine rests. Meanwhile,
uncertainty in the law has inevitably been a fertile breeding
ground for litigation and the Court of Appeal have grappled as
best they could with the problem of seeking to determine where
the limits of the doctrine are to be drawn: see for example
Investors in Industry Commercial Properties Ltd. v. South
Bedfordshire District Council [1986] Q.B. 1034 and Richardson v.
West Lindsey District Council [1990] 1 W.L.R. 522. Sooner or
later, in this unhappy situation, a direct challenge to the authority
of Anns was inevitable. Perhaps it is unfortunate that it did not
come sooner, but the House could not, I think, have contemplated
departing from the decision of an Appellate Committee so
eminently constituted unless directly invited to do so. Now that
the challenge has to be faced, I believe, for reasons which I hope
will become apparent, that the choice before the House lies
between following Australia and rejecting Anns altogether or
following Canada and New Zealand in carrying the Anns doctrine a
large, legislative step forward to its logical conclusion and holding
that the scope of the duty of care, imposed by the law on local



- 19 -

authorities for the negligent performance of their functions under
the relevant statutes, embraces all economic loss sustained by the
owner or occupier of a building by reason of defects in it arising
from construction in breach of building byelaws or regulations.

Dangerous defects and defects of quality

If a manufacturer negligently puts into circulation a chattel
containing a latent defect which renders it dangerous to persons or
property, the manufacturer, on the well known principles
established by Donoghue v. Stevenson [1932] AC 562, will be
liable in tort for injury to persons or damage to property which
the chattel causes. But if a manufacturer produces and sells a
chattel which is merely defective in quality, even to the extent
that it is valueless for the purpose for which it is intended, the
manufacturer's liability at common law arises only under and by
reference to the terms of any contract to which he is a party in
relation to the chattel; the common law does not impose on him
any liability in tort to persons to whom he owes no duty in
contract but who, having acquired the chattel, suffer economic loss
because the chattel is defective in quality. If a dangerous defect
in a chattel is discovered before it causes any personal injury or
damage to property, because the danger is now known and the
chattel cannot be safely be used unless the defect is repaired, the
defect becomes merely a defect in quality. The chattel is either
capable of repair at economic cost or it is worthless and must be
scrapped. In either case the loss sustained by the owner or hirer
of the chattel is purely economic. It is recoverable against any
party who owes the loser a relevant contractual duty. But it is
not recoverable in tort in the absence of a special relationship of
proximity imposing on the tortfeasor a duty of care to safeguard
the plaintiff from economic loss. There is no such special
relationship between the manufacturer of a chattel and a remote
owner or hirer.

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. The
only qualification I would make to this is that, if a building stands
so close to the boundary of the building owner's land that after
discovery of the dangerous defect it remains a potential source of
injury to persons or property on neighbouring land or on the
highway, the building owner ought, in principle, to be entitled to
recover in tort from the negligent builder the cost of obviating
the danger, whether by repair or by demolition, so far as that cost
is necessarily incurred in order to protect himself from potential
liability to third parties.

- 20 -

The fallacy which, in my opinion, vitiates the judgments of
Lord Denning M.R. and Sachs L.J. in Dutton [1972] 1 Q.B. 373 is
that they brush these distinctions aside as of no consequence: see
per Lord Denning M.R., at p. 396D-F, and per Sachs L.J., at pp.
403H-404B. Stamp L.J., on the other hand, fully understood and
appreciated them and his statement of the applicable principles as
between the building owner and the builder, at p. 414D-H, seems
to me unexceptionable. He rested his decision in favour of the
plaintiff against the local authority on a wholly distinct principle
which will require separate examination.

The complex structure theory

In my speech in D. & F. Estates at pp. 206G-207H I mooted
the possibility that in complex structures or complex chattels one
part of a structure or chattel might, when it caused damage to
another part of the same structure or chattel, be regarded in the
law of tort as having caused damage to "other property" for the
purpose of the application of Donoghue v. Stevenson principles. I
expressed no opinion as to the validity of this theory, but put it
forward for consideration as a possible ground on which the facts
considered in Anns [1978] AC 728 might be distinguishable from
the facts which had to be considered in D. & F. Estates itself. I
shall call this for convenience "the complex structure theory" and
it is, so far as I can see, only if and to the extent that this
theory can be affirmed and applied that there can be any escape
from the conclusions I have indicated above under the rubric
"Dangerous defects and defects of quality."

The complex structure theory has, so far as I know, never
been subjected to express and detailed examination in any English
authority. I shall not attempt a review of the numerous
authorities which bear upon it in the different state jurisdictions in
the United States of America. However, some significant
landmarks must be mentioned. In Quackenbush v. Ford Motor Co.,
153 N.Y.S. 131, a decision of the Appellate Division of the
Supreme Court of New York, the plaintiff recovered damages in
tort from the manufacturer for damage to her Ford motor car
caused by an accident attributable to faulty manufacture of the
brakes. It is at least highly doubtful if the reasoning of this
decision can now be supported consistently with the unanimous
opinion of the United States Supreme Court in East River
Steamship Corporation v. Transamerica Delaval Inc., (1986) 106 S.
Ct. 2295 that a manufacturer incurs no liability in tort for damage
occasioned by a defect in a product which injures itself.
Blackmun J., delivering the opinion of the court, said, at p. 2302:

"We realize that the damage may be qualitative, occurring
through gradual deterioration or internal breakage. Or it
may be calamitous. . . . But either way, since by definition
no person or other property is damaged, the resulting loss is
purely economic. Even when the harm to the product itself
occurs through an abrupt, accident-like event, the resulting
loss due to repair costs, decreased value, and lost profits is
essentially the failure of the purchaser to receive the
benefit of its bargain - traditionally the core concern of
contract law."

- 21 -

Quackenbush is, in any event, no authority for the
proposition that, once a defect in a complex chattel is discovered,
there is a remedy in tort against the manufacturer on the ground
that the cost of repairing the defect was necessarily incurred in
order to prevent further damage to other parts of the chattel. A
striking illustration of this is Transworld Airlines Inc. v. Curtiss-
Wright Corporation (1955) 148 N.Y.S. 2d 284 in which the airline,
having discovered defects in the engines fitted to some of their
planes, fortunately before any accident occurred, chose not to sue
the plane manufacturer in contract, but sued the engine
manufacturer in tort. The manufacturer was held not liable. This
and other relevant American authorities are extensively reviewed
in the illuminating judgment of the British Columbia Court of
Appeal delivered by Tysoe J.A. in Rivtow Marine Ltd v.
Washington Iron Works [1972] 3 W.W.R. 735. The court held that
the manufacturers were not liable in tort to the hirers of a crane
for the cost of repair rendered necessary when the crane was
found to be dangerously defective in use. This decision was
affirmed by the Supreme Court of Canada by a majority of seven
to two [1973] 6 W.W.R. 692. Since Lord Wilberforce in Anns
referred with approval to the dissenting judgment of Laskin J. in
that case, which he described, at p. 760, as "of strong persuasive
force," I have read and re-read that judgment with the closest
attention. I have to say, with all respect, that I find it wholly
unconvincing. It depends on the same fallacy as that which
vitiates the judgments of Lord Denning M.R. and Sachs L3 in
Dutton. In particular, in equating the damage sustained in
repairing the chattel to make it safe with the damage which would
have been suffered if the latent defect had never been discovered
and the chattel had injured somebody in use, the judgment ignores
the circumstance that once a chattel is known to be dangerous it
is simply unusable. If I buy a second hand car and find it to be
faulty, it can make no difference to the manufacturer's liability in
tort whether the fault is in the brakes or in the engine, i.e.
whether the car will not stop or will not start. In either case the
car is useless until repaired. The manufacturer is no more liable
in tort for the cost of the repairs in the one case than in the
other.

Bowen v. Paramount Builders (Hamilton) Ltd. [1977] 1
N.Z.L.R. 394 was a case where the plaintiff building owner sued
the builder in tort for the cost of making good damage caused by
subsidence caused by inadequate foundations. The trial judge
dismissed the claim on the ground that the principle of Donoghue
v. Stevenson did not apply to entitle the plaintiff to recover in
tort for a defect in the quality of the building. The judgments of
the New Zealand Court of Appeal to the opposite effect were
referred to with approval by Lord Wilberforce in Anns. The
critical paragraph from the judgment of Richmond P., at p. 410,
reads:

"Does damage to the house itself give rise to a cause of
action? As I have already said, I agree with Speight J. that
the principles laid down in Donoghue v. Stevenson [1932]
A.C. 562 apply to a builder erecting a house under a
contract with the owner. He is under a duty of care not to
create latent sources of physical danger to the person or
property of third persons whom he ought reasonably to
foresee as likely to be affected thereby. If the latent



- 22 -

defect causes actual physical damage to the structure of the
house then I can see no reason in principle why such
damage should not give rise to a cause of action, at any
rate if that damage occurs after the house has been
purchased from the original owner. This was clearly the
view of Lord Denning M.R. and of Sachs L.J. in Dutton v.
Bognor Regis Urban District Council [1972] 1 Q.B. 373, 396,
403-404. In the field of products liability this has long been
the law in the United States: see Prosser's Law of Torts, p.
665, sec. 101, and Quackenbush v. Ford Motor Co., 167
Appellate Division 433, 153 N.Y.S. 131 (1915). For the
purposes of the present case it is not necessary to deal with
the question of 'pure' economic loss, that is to say
economic loss which is not associated with a latent defect
which causes or threatens physical harm to the structure
itself."

Richmond P. goes on to hold that the measure of damages
would include the whole cost of remedial works plus any
diminution in value of the house in so far as it was impossible to
effect a complete remedy.

I cannot see any way in which the reasoning in the
paragraph quoted and the consequences in relation to the measure
of damages can in principle be supported except by an extreme
application of the complex structure theory treating each part of
the entire structure as a separate item of property. But such an
application of the theory seems to me quite unrealistic. The
reality is that the structural elements in any building form a
single indivisible unit of which the different parts are essentially
interdependent. To the extent that there is any defect in one
part of the structure it must to a greater or lesser degree
necessarily affect all other parts of the structure. Therefore any
defect in the structure is a defect in the quality of the whole and
it is quite artificial, in order to impose a legal liability which the
law would not otherwise impose, to treat a defect in an integral
structure, so far as it weakens the structure, as a dangerous
defect liable to cause damage to "other property."

A critical distinction must be drawn here between some part
of a complex structure which is said to be a "danger" only because
it does not perform its proper function in sustaining the other
parts and some distinct item incorporated in the structure which
positively malfunctions so as to inflict positive damage on the
structure in which it is incorporated. Thus, if a defective central
heating boiler explodes and damages a house or a defective
electrical installation malfunctions and sets the house on fire, I
see no reason to doubt that the owner of the house, if he can
prove that the damage was due to the negligence of the boiler
manufacturer in the one case or the electrical contractor on the
other, can recover damages in tort on Donoghue v. Stevenson
[1932] AC 562 principles. But the position in law is entirely
different where, by reason of the inadequacy of the foundations of
the building to support the weight of the superstructure,
differential settlement and consequent cracking occurs. Here, once
the first cracks appear, the structure as a whole is seen to be
defective and the nature of the defect is known. Even if,
contrary to my view, the initial damage could be regarded as
damage to other property caused by a latent defect, once the



- 23 -

defect is known the situation of the building owner is analogous to
that of the car owner who discovers that the car has faulty
brakes. He may have a house which, until repairs are effected, is
unfit for habitation, but, subject to the reservation I have
expressed with respect to ruinous buildings at or near the boundary
of the owner's property, the building no longer represents a source
of danger and as it deteriorates will only damage itself.

For these reasons the complex structure theory offers no
escape from the conclusion that damage to a house itself which is
attributable to a defect in the structure of the house is not
recoverable in tort on Donoghue v. Stevenson principles, but
represents purely economic loss which is only recoverable in
contract or in tort by reason of some special relationship of
proximity which imposes on the tortfeasor a duty of care to
protect against economic loss.

The relative positions of the builder and the local authority

I have so far been considering the potential liability of a
builder for negligent defects in the structure of a building to
persons to whom he owes no contractual duty. Since the relevant
statutory function of the local authority is directed to no other
purpose than securing compliance with building byelaws or
regulations by the builder, I agree with the view expressed in Anns
[1978] AC 728 and by the majority of the Court of Appeal in
Dutton [1972] 1 Q.B. 373 that a negligent performance of that
function can attract no greater liability than attaches to the
negligence of the builder whose fault was the primary tort giving
rise to any relevant damage. I am content for present purposes to
assume, though I am by no means satisfied that the assumption is
correct, that where the local authority, as in this case or in
Dutton, have in fact approved the defective plans or inspected the
defective foundations and negligently failed to discover the defect,
their potential liability in tort is coextensive with that of the
builder.

Only Stamp L.J. in Dutton was prepared to hold that the
law imposed on the local authority a duty of care going beyond
that imposed on the builder and extending to protection of the
building owner from purely economic loss. I must return later to
consider the question of liability for economic loss more generally,
but here I need only say that I cannot find in Hedley Byrne & Co.
Ltd. v. Heller & Partners Ltd. [1964] AC 465 or Dorset Yacht
Co. Ltd. v. Home Office [1970] AC 1004 any principle applicable
to the circumstances of Dutton or the present case that provides
support for the conclusion which Stamp L.J. sought to derive from
those authorities.

Imminent danger to health or safety

A necessary element in the building owner's cause of action
against the negligent local authority, which does not appear to
have been contemplated in Dutton but which, it is said in Anns,
must be present before the cause of action accrues, is that the
state of the building is such that there is present or imminent
danger to the health or safety of persons occupying it.
Correspondingly the damages recoverable are said to include the
amount of expenditure necessary to restore the building to a



- 24 -

condition in which it is no longer such a danger, but presumably
not any further expenditure incurred in any merely qualitative
restoration. I find these features of the Anns doctrine very
difficult to understand. The theoretical difficulty of reconciling
this aspect of the doctrine with previously accepted legal principle
was pointed out by Lord Oliver of Aylmerton in D. & F. Estates
[1989] AC 177, 212D-213D. But apart from this there are, as it
appears to me, two insuperable difficulties arising from the
requirement of imminent danger to health or safety as an
ingredient of the cause of action which lead to quite irrational and
capricious consequences in the application of the Anns doctrine.
The first difficulty will arise where the relevant defect in the
building, when it is first discovered, is not a present or imminent
danger to health or safety. What is the owner to do if he is
advised that the building will gradually deteriorate, if not repaired,
and will in due course become a danger to health and safety, but
that the longer he waits to effect repairs the greater the cost will
be? Must he spend £1,000 now on the necessary repairs with no
redress against the local authority? Or is he entitled to wait until
the building has so far deteriorated that he has a cause of action
and then to recover from the local authority the £5,000 which the
necessary repairs are now going to cost? I can find no answer to
this conundrum. A second difficulty will arise where the latent
defect is not discovered until it causes the sudden and total
collapse of the building, which occurs when the building is
temporarily unoccupied and causes no damage to property except
to the building itself. The building is now no longer capable of
occupation and hence cannot be a danger to health or safety. It
seems a very strange result that the building owner should be
without remedy in this situation if he would have been able to
recover from the local authority the full cost of repairing the
building if only the defect had been discovered before the building
fell down.

Liability for economic loss

All these considerations lead inevitably to the conclusion
that a building owner can only recover the cost of repairing a
defective building on the ground of the authority's negligence in
performing its statutory function of approving plans or inspecting
buildings in the course of construction if the scope of the
authority's duty of care is wide enough to embrace purely
economic loss. The House has already held in D. & F. Estates
that a builder, in the absence of any contractual duty or of a
special relationship of proximity introducing the Hedley Byrne
principle of reliance, owes no duty of care in tort in respect of
the quality of his work. As I pointed out in D. & F. Estates, to
hold that the builder owed such a duty of care to any person
acquiring an interest in the product of the builder's work would be
to impose upon him the obligations of an indefinitely transmissible
warranty of quality.

By section 1 of the Defective Premises Act 1972 Parliament
has in fact imposed on builders and others undertaking work in the
provision of dwellings the obligations of a transmissible warranty
of the quality of their work and of the fitness for habitation of
the completed dwelling. But besides being limited to dwellings,
liability under the Act is subject to a limitation period of six
years from the completion of the work and to the exclusion



- 25 -

provided for by section 2. It would be remarkable to find that
similar obligations in the nature of a transmissible warranty of
quality, applicable to buildings of every kind and subject to no
such limitations or exclusions as are imposed by the Act of 1972,
could be derived from the builder's common law duty of care or
from the duty imposed by building byelaws or regulations. In Anns
Lord Wilberforce expressed the opinion that a builder could be held
liable for a breach of statutory duty in respect of buildings which
do not comply with the byelaws. But he cannot, I think, have
meant that the statutory obligation to build in conformity with the
byelaws by itself gives rise to obligations in the nature of
transmissible warranties of quality. If he did mean that, I must
respectfully disagree. I find it impossible to suppose that anything
less than clear express language such as is used in section 1 of
the Act of 1972 would suffice to impose such a statutory
obligation.

As I have already said, since the function of a local
authority in approving plans or inspecting buildings in course of
construction is directed to ensuring that the builder complies with
building byelaws or regulations, I cannot see how, in principle, the
scope of the liability of the authority for a negligent failure to
ensure compliance can exceed that of the liability of the builder
for his negligent failure to comply.

There may, of course, be situations where, even in the
absence of contract, there is a special relationship of proximity
between builder and building owner which is sufficiently akin to
contract to introduce the element of reliance so that the scope of
the duty of care owed by the builder to the owner is wide enough
to embrace purely economic loss. The decision in Junior Books
Ltd v. Veitchi Co. Ltd. [1983] 1 AC 520 can, I believe, only be
understood on this basis.

In Council of the Shire of Sutherland v. Heyman 157 C.L.R.
424 the critical role of the reliance principle as an element in the
cause of action which the plaintiff sought to establish is the
subject of close examination, particularly in the judgment of Mason
J. The central theme of his judgment, and a subordinate theme in
the judgments of Brennan and Deane JJ, who together with Mason
J formed the majority rejecting the Anns doctrine, is that a duty
of care of a scope sufficient to make the authority liable for
damage of the kind suffered can only be based on the principle of
reliance and that there is nothing in the ordinary relationship of a
local authority, as statutory supervisor of building operations, and
the purchaser of a defective building capable of giving rise to such
a duty. I agree with these judgments. It cannot, I think, be
suggested, nor do I understand Anns or the cases which have
followed Anns in Canada and New Zealand to be in fact
suggesting, that the approval of plans or the inspection of a
building in the course of construction by the local authority in
performance of their statutory function and a subsequent purchase
of the building by the plaintiff are circumstances in themselves
sufficient to introduce the principle of reliance which is the
foundation of a duty of care of the kind identified in Hedley
Byrne.

In Dutton Lord Denning M.R. said, at pp. 397-398:

- 26 -

"Mrs. Dutton has suffered a grievous loss. The house fell
down without any fault of hers. She is in no position
herself to bear the loss. Who ought in justice to bear it?
I should think those who were responsible. Who are they?
In the first place, the builder was responsible. It was he
who laid the foundations so badly that the house fell down.
In the second place, the council's inspector was responsible.
It was his job to examine the foundations to see if they
would take the load of the house. He failed to do it
properly. In the third place, the council should answer for
his failure. They were entrusted by Parliament with the
task of seeing that houses were properly built. They
received public funds for the purpose. The very object was
to protect purchasers and occupiers of houses. Yet they
failed to protect them. Their shoulders are broad enough to
bear the loss."

These may be cogent reasons of social policy for imposing liability
on the authority. But the shoulders of a public authority are only
"broad enough to bear the loss" because they are financed by the
public at large. It is pre-eminently for the legislature to decide
whether these policy reasons should be accepted as sufficent for
imposing on the public the burden of providing compensation for
private financial losses. If they do so decide, it is not difficult
for them to say so.




I would allow the appeal.

LORD BRANDON OF OAKBROOK

My Lords,

I have had the advantage of reading in draft the speech
prepared by my noble and learned friend, Lord Keith of Kinkel. I
agree with it, and for the reasons which he gives I consider that
the House should depart from its previous decision in Anns v.
Merton London Borough Council [1978] AC 728 to the extent
proposed by him, and that the appeal should be allowed
accordingly.

LORD ACKNER

My Lords,

I have had the advantage of reading in draft the speeches
of my noble and learned friends Lord Keith of Kinkel, Lord Bridge
of Harwich, Lord Oliver of Aylmerton and Lord Jauncey of
Tullichettle. For the reasons which they have given, I too would
allow this appeal.

- 27 -

LORD OLIVER OF AYLMERTON

My Lords,

I have had the advantage of reading in draft the speeches
prepared by my noble and learned friends, Lord Keith of Kinkel
and Lord Bridge of Harwich. For the reasons which they have
given I too would allow this appeal. Since, however, this involves
departing from a seminal decision of this House which has stood
for a considerable period and which has had the most profound
influence on the development of the law of negligence both in the
United Kingdom and in other jurisdictions it is, I think, only right
that I should also state my reasons independently.

In the 13 years which have elapsed since the decision of
this House in Anns v. Merton London Borough Council [1978] A.C.
728 the anomalies which arise from its literal application and the
logical difficulty in relating it to the previously established
principles of the tort of negligence have become more and more
apparent. This appeal and the appeal in the case of Department
of the Environment v. Thomas Bates and Sons Ltd. which was
heard shortly before it, have highlighted some of the problems
which Anns has created and underline the urgent need for it now
to be re-examined.

In approaching such a re-examination there are number of
points to be made at the outset. First, it has to be borne in
mind that neither in Anns nor in Dutton v. Bognor Regis Urban
District Council [1972] 1 Q.B. 373, which preceded it, was the
liability of the local authority based upon the proposition that the
Public Health Act 1936 gave rise to an action by a private
individual for breach of statutory duty of the type contemplated in
Cutler v. Wandsworth Stadium Ltd. [1949] A.C. 398, a type of
claim quite distinct from a claim in negligence (see London
Passenger Transport Board v. Upson [1949] A.C. 155, 168, per Lord
Wright.) The duty of the local authority was, as Lord Wilberforce
stressed in the course of his speech in Anns, at p. 758, the
ordinary common law duty to take reasonable care, no more and
no less.

Secondly, in neither case was it possible to allege
successfully that the plaintiffs had relied upon the proper
performance by the defendant of its Public Health Act duties so
as to invoke the principles expounded in Hedley Byrne & Co. Ltd.
v. Heller & Partners Ltd. [1964] AC 465. In the course of his
speech in Anns, at p.p. 768-769, Lord Salmon was at pains to
emphasise that the claim had nothing to do with reliance.

Thirdly, the injury of which the plaintiffs complained in
Anns was not "caused" by the defendant authority in any accepted
sense of the word. The complaint was not of what the defendant
had done but of what it had not done. It had failed to prevent
the builder of the flats from erecting a sub-standard structure. It
is true that in Dutton the basis for liability was said, by both
Lord Denning M.R. and Sachs L.J., to rest on the defendant's
ability to control the building operation, from which it might be
inferred that it was so involved in the operation as to be directly
responsible for the defective foundations. This, whilst it goes no
way towards resolving many of the difficulties arising from the



- 28 -

decision, might be thought perhaps to provide a more acceptable
basis for liability, but it was specifically rejected in Anns (see per
Lord Wilberforce, at p. 754).

Fourthly, although in neither case was the builder who had
actually created the defect represented at the hearing, the fact
that the claim was, in essence, one based upon the failure of the
defendant to prevent the infliction of tortious injury by the builder
rendered it necessary to determine also the question of what, if
any, liability lay upon him. If the builder was under no obligation
to the plaintiffs to take reasonable care to provide proper
foundations it is difficult to see how the defendant authority could
be liable for failing to prevent what was, vis-a-vis the plaintiffs,
lawful conduct on his part save on the footing that the Act of
1936 imposed an absolute statutory duty to ensure that no sub-
standard building was erected. But, as already mentioned, the
action was not one for breach of statutory duty. The liability of
the local authority and that of the builder are not, therefore,
logically separable.

Finally, despite the categorisation of the damage as
"material, physical damage" (Anns, per Lord Wilberforce, at p. 759)
it is, I think, incontestable on analysis that what the plaintiffs
suffered was pure pecuniary loss and nothing more. If one asks,
"What were the damages to be awarded for?" clearly they were
not to be awarded for injury to the health or person of the
plaintiffs for they had suffered none. But equally clearly, although
the "damage" was described, both in the Court of Appeal in
Dutton and in this House in Anns, as physical or material damage,
this simply does not withstand analysis. To begin with, it makes
no sort of sense to accord a remedy where the defective nature of
the structure has manifested itself by some physical sympton, such
as a crack or a fractured pipe, but to deny it where the defect
has been brought to light by, for instance, a structural survey in
connection with a proposed sale. Moreover, the imminent danger
to health or safety which was said to be the essential ground of
the action was not the result of the physical manifestations which
had appeared but of the inherently defective nature of the
structure which they revealed. They were merely the outward
signs of a deterioration resulting from the inherently defective
condition with which the building had been brought into being from
its inception and cannot properly be described as damage caused to
the building in any accepted use of the word "damage."

In the speech of my noble and learned friend, Lord Bridge
of Harwich, and in my own speech in D. & F. Estates Ltd. v.
Church Commissioners for England [1989] A.C. 167 there was
canvassed what has been called "the complex structure theory."
This has been rightly criticised by academic writers although I
confess that I thought that both my noble and learned friend and I
had made it clear that it was a theory which was not embraced
with any enthusiasm but was advanced as the only logically
possible explanation of the categorisation of the damage in Anns
as "material, physical damage." My noble and learned friend has,
in the course of his speech in the present case, amply
demonstrated the artificiality of the theory and, for the reasons
which he has given, it must be rejected as a viable explanation of
the underlying basis for the decision in Anns. However that
decision is analysed, therefore, it is in the end inescapable that



- 29 -

the only damage for which compensation was to be awarded and
which formed the essential foundation of the action was pecuniary
loss and nothing more. The injury which the plaintiff suffers in
such a case is that his consciousness of the possible injury to his
own health or safety or that of others puts him in a position in
which, in order to enable him either to go on living in the
property or to exploit its financial potentiality without that risk,
whether substantial or insubstantial, he has to expend money in
making good the defects which have now become patent. In the
course of his speech in Anns [1978] AC 728, Lord Wilberforce
acknowledged the assistance that he had derived from the
dissenting judgment of Laskin J. in Rivtow Marine Ltd. v.
Washington Iron Works [1973] 6 W.W.R. 692. That case presents
an interesting parallel, though not a precise one, for the danger
there was not to the plaintiffs but to their workmen. The
expenditure which they were there seeking to recover and for
which Laskin J. would have reimbursed them was incurred not
because it was necessary in order to rescue employees or others
from imminent injury, for the crane was not dangerous in itself
and the potential danger was known and foreseen. It was a danger
to them only if the plaintiffs chose to go on using it for the
purpose for which it was designed and the expenditure was
incurred in order to enable them to reap such economic advantages
as lay in their continued ability to use it for that purpose.

The fact is that the categorisation of the damage in Anns
as "material, physical damage," whilst, at first sight, lending to
the decision some colour of consistency with the principle of
Donoghue v. Stevenson [1932] AC 562, has served to obscure not
only the true nature of the claim but, as a result, the nature and
scope of the duty upon the breach of which the plaintiffs in that
case were compelled to rely.

It does not, of course, at all follow as a matter of
necessity from the mere fact that the only damage suffered by a
plaintiff in an action for the tort of negligence is pecuniary or
"economic" that his claim is bound to fail. It is true that, in an
uninterrupted line of cases since 1875, it has consistently been
held that a third party cannot successfully sue in tort for the
interference with his economic expectations or advantage resulting
from injury to the person or property of another person with whom
he has or is likely to have a contractual relationship (see Cattle v.
Stockton Waterworks Co. (1875) LR 10 QB 453; Simpson & Co.
v. Thomson (1877) 3 App.Cas. 279; La Societe Anonyme de
Remorquage a Helice v. Bennetts [1911] 1 KB 243). That
principle was applied more recently by Widgery J. in Weller & Co.
v. Foot and Mouth Disease Research Institute [1966] 1 Q.B. 569
and received its most recent reiteration in the decision of this
House in Leigh and Sillavan Ltd. v. Aliakmon Shipping Co. Ltd.
[1986] AC 785. But it is far from clear from these decisions
that the reason for the plaintiff's failure was simply that the only
loss sustained was "economic." Rather they seem to have been
based either upon the remoteness of the damage as a matter of
direct causation or, more probably, upon the "floodgates" argument
of the impossibility of containing liability within any acceptable
bounds of the law were to permit such claims to succeed. The
decision of this House in Morrison Steamship Co. Ltd. v. Greystoke
Castle (Cargo Owners) [1947] A.C. 265 demonstrates that the mere
fact that the primary damage suffered by a plaintiff is pecuniary



- 30 -

is no necessary bar to an action in negligence given the proper
circumstances - in that case, what was said to be the "joint
venture" interest of shipowners and the owners of cargo carried on
board - and if the matter remained in doubt that doubt was
conclusively resolved by the decision of this House in Hedley Byrne
& Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 where Lord
Devlin, at p. 517 convincingly demonstrated the illogicality of a
distinction between financial loss caused directly and financial loss
resulting from physical injury to personal property.

The critical question, as was pointed out in the analysis of
Brennan J. in his judgment in Council of the Shire of Sutherland v.
Heyman (1985) 157 C.L.R. 424, is not the nature of the damage in
itself, whether physical or pecuniary, but whether the scope of the
duty of care in the circumstances of the case is such as to
embrace damage of the kind which the plaintiff claims to have
sustained (see Caparo Industries Plc, v. Dickman [1990] 2 W.L.R.
358). The essential question which has to be asked in every case,
given that damage which is the essential ingredient of the action
has occurred, is whether the relationship between the plaintiff and
the defendant is such - or, to use the favoured expression, whether
it is of sufficent "proximity" - that it imposes upon the latter a
duty to take care to avoid or prevent that loss which has in fact
been sustained. That the requisite degree of proximity may be
established in circumstances in which the plaintiff's injury results
from his reliance upon a statement or advice upon which he was
entitled to rely and upon which it was contemplated that he would
be likely to rely is clear from Hedley Byrne and subsequent cases,
but Anns [1978] AC 728 was not such a case and neither is the
instant case. It is not, however, necessarily to be assumed that
the reliance cases form the only possible category of cases in
which a duty to take reasonable care to avoid or prevent
pecuniary loss can arise. Morrison Steamship Co. Ltd. v.
Greystoke Castle (Cargo Owners), for instance, clearly was not a
reliance case. Nor indeed was Ross v. Caunters [1980] Ch. 297 so
far as the disappointed beneficiary was concerned. Another
example may be Ministry of Housing and Local Government v.
Sharp [1980] 2 Q.B. 223, although this may, on analysis, properly
be categorised as a reliance case.

Nor is it self-evident logically where the line is to be
drawn. Where, for instance, the defendant's careless conduct
results in the interruption of the electricity supply to business
premises adjoining the highway, it is not easy to discern the logic
in holding that a sufficient relationship of proximity exists between
him and a factory owner who has suffered loss because material in
the course of manufacture is rendered useless but that none exists
between him and the owner of, for instance, an adjoining
restaurant who suffers the loss of profit on the meals which he is
unable to prepare and sell. In both cases the real loss is
pecuniary. The solution to such borderline cases has so far been
achieved pragmatically (see Spartan Steel & Alloys Ltd. v. Martin
& Co. (Contractors) Ltd. [1973] QB 27) not by the application of
logic but by the perceived necessity as a matter of policy to place
some limits - perhaps arbitrary limits - to what would otherwise
be an endless, cumulative causative chain bounded only by
theoretical foreseeability.

- 31 -

I frankly doubt whether, in searching for such limits, the
categorisation of the damage as "material," "physical," "pecuniary"
or "economic" provides a particularly useful contribution. Where it
does, I think, serve a useful purpose is in identifying those cases
in which it is necessary to search for and find something more
than the mere reasonable foreseeability of damage which has
occurred as providing the degree of "proximity" necessary to
support the action. In his classical exposition in Donoghue v.
Stevenson [1932] AC 562, 580-581, Lord Atkin was expressing
himself in the context of the infliction of direct physical injury
resulting from a carelessly created latent defect in a manufactured
product. In his analysis of the duty in those circumstances he
clearly equated "proximity" with the reasonable foresight of
damage. In the straightforward case of the direct infliction of
physical injury by the act of the plaintiff there is, indeed, no need
to look beyond the foreseeability by the defendant of the result in
order to establish that he is in a "proximate" relationship with the
plaintiff. But, as was pointed out by Lord Diplock in Dorset
Yacht Co. Ltd. v. Home Office [1970] AC 1004, at p. 1060, Lord
Atkin's test, though a useful guide to characteristics which will be
found to exist in conduct and relationships giving rise to a legal
duty of care, is manifestly false if misused as a universal; and
Lord Reid, in the course of his speech in the same case,
recognised that the statement of principle enshrined in that test
necessarily required qualification in cases where the only loss
caused by the defendant's conduct was economic. The infliction of
physical injury to the person or property of another universally
requires to be justified. The causing of economic loss does not.
If it is to be categorised as wrongful it is necessary to find some
factor beyond the mere occurrence of the loss and the fact that
its occurrence could be foreseen. Thus the categorisation of
damage as economic serves at least the useful purpose of
indicating that something more is required and it is one of the
unfortunate features of Anns that it resulted initially in this
essential distinction being lost sight of.

The two-stage test propounded by Lord Wilberforce in Anns
was at first interpreted as indicating as a universal proposition
that the relationship between defendant and plaintiff encapsulated
in the word "proximity" arose from the foreseeability of damage
alone regardless of whether the case was one of direct physical
injury or of pure pecuniary loss. Both Dutton [1972] 1 Q.B. 373
and Bowen v. Paramount Builders (Hamilton) Ltd. [1977] 1 N.Z.L.R.
394 are examples of the application of Lord Atkin's principle as a
universal. There can, of course, be no doubt that it can
reasonably be foreseen that if an inherently defective house is
built or an inherently defective chattel is manufactured some
future owner will be likely to sustain loss when the defect comes
to light, if only because it is less valuable than it was thought to
be when he bought and paid for it. A series of decisions in this
House and in the Privy Council since Anns, however, have now
made it clear beyond argument that in cases other than cases of
direct physical injury the reasonable foreseeability of damage is
not of itself sufficient and that there has to be sought in addition
in the relationship between the parties that elusive element
comprehended in the expression "proximity" (see Governors of the
Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985]
A.C. 210; Yuen Kun Yeu v. Attorney-General of Hong Kong [1988]
A.C. 175; Hill v. Chief Constable of West Yorkshire [1989] A.C.



- 32 -

53). It is an expression which persistently defies definition but my
difficulty in rationalising the basis of Dutton and Anns is and has
always been not so much in defining it as in discerning the
circumstances from which it could have been derived. For reasons
which I have endeavoured to explain, the starting-point in seeking
to rationalise these decisions must, as it seems to me, be to
establish the basis of the liability of the person who is the direct
and immediate cause of the plaintiff's loss. Anyone, whether he
be a professional builder or a do-it-yourself enthusiast, who builds
or alters a semi-permanent structure must be taken to contemplate
that at some time in the future it will, whether by purchase, gift
or inheritance, come to be occupied by another person and that if
it is defectively built or altered it may fall down and injure that
person or his property or may put him in a position in which, if
he wishes to occupy it safely or comfortably, he will have to
expend money on rectifying the defect. The case of physical
injury to the owner or his licensees or his or their property
presents no difficulty. He who was responsible for the defect -
and it will be convenient to refer to him compendiously as "the
builder" - is, by the reasonable foreseeability of that injury, in a
proximate "neighbour" relationship with the injured person on
ordinary Donoghue v. Stevenson principles. But when no such
injury has occurred and when the defect has been discovered and
is therefore no longer latent, whence arises that relationship of
proximity required to fix him with responsibility for putting right
the defect? Foresight alone is not enough but from what else can
the relationship be derived? Apart from contract, the
manufacturer of a chattel assumes no responsibility to a third
party into whose hands it has come for the cost of putting it into
a state in which it can safely continue to be used for the purpose
for which it was intended. Anns, of course, does not go so far as
to hold the builder liable for every latent defect which depreciates
the value of the property but limits the recovery, and thus the
duty, to the cost of putting it into a state in which it is no
longer an imminent threat to the health or safety of the occupant.
But it is difficult to see any logical basis for such a distinction.
If there is no relationship of proximity such as to create a duty to
avoid pecuniary loss resulting from the plaintiff's perception of
non-dangerous defects, upon what principle can such a duty arise
at the moment when the defect is perceived to be an imminent
danger to health? Take the case of an owner-occupier who has
inherited the property from a derivative purchaser. He suffers, in
fact, no "loss" save that the property for which he paid nothing is
less valuable to him by the amount which it will cost him to
repair it if he wishes to continue to live in it. If one assumes
the parallel case of one who has come into possession of a
defective chattel - for instance, a yacht - which may be a danger
if it is used without being repaired, it is impossible to see upon
what principle such a person, simply because the chattel has
become dangerous, could recover the cost of repair from the
original manufacturer.

The suggested distinction between mere defect and
dangerous defect which underlies the judgment of Laskin J. in
Rivtow Marine Ltd. v. Washington Iron Works [1973] 6 W.W.R. 692
is, I believe, fallacious. The argument appears to be that because,
if the defect had not been discovered and someone had been
injured, the defendant would have been liable to pay damages for
the resultant physical injury on the principle of Donoghue v.



- 33 -

Stevenson it is absurd to deny liability for the cost of preventing
such injury from ever occurring. But once the danger ceases to
be latent there never could be any liability. The plaintiff's
expenditure is not expenditure incurred in minimising the damage
or in preventing the injury from occurring. The injury will not
now ever occur unless the plaintiff causes it to do so by courting
a danger of which he is aware and his expenditure is incurred not
in preventing an otherwise inevitable injury but in order to enable
him to continue to use the property or the chattel.

My Lords, for the reasons which I endeavoured to state in
the course of my speech in D. & F. Estates Ltd. v. Church
Commissioners for England [1989] AC 177 and which are
expounded in more felicitous terms both in the speeches of my
noble and learned friends in the instant case and in that of my
noble and learned friend, Lord Keith of Kinkel, in Department of
the Environment v. Thomas Bates and Sons Ltd., I have found it
impossible to reconcile the liability of the builder propounded in
Anns with any previously accepted principles of the tort of
negligence and I am able to see no circumstances from which
there can be deduced a relationship of proximity such as to render
the builder liable in tort for pure pecuniary damage sustained by a
derivative owner with whom he has no contractual or other
relationship. Whether, as suggested in the speech of my noble and
learned friend, Lord Bridge of Harwich, he could be held
responsible for the cost necessarily incurred by a building owner in
protecting himself from potential liability to third parties is a
question upon which I prefer to reserve my opinion until the case
arises, although I am not at the moment convinced of the basis
for making such a distinction.

If, then, the law imposes upon the person primarily
responsible for placing on the market a defective building no
liability to a remote purchaser for expenditure incurred in making
good defects which, ex hypothesi, have injured nobody, upon what
principle is liability in tort to be imposed upon a local authority
for failing to exercise its regulatory powers so as to prevent
conduct which, on this hypothesis, is not tortious? Or, to put it
another way, what is it, apart from the foreseeability that the
builder's failure to observe the regulations may create a situation
in which expenditure by a remote owner will be required, that
creates the relationship of proximity between the authority and the
remote purchaser? A possible explanation might, at first sight,
seem to be that the relationship arises from the mere existence of
the public duty of supervision imposed by the statute. That, I
think, must have been the view of Stamp L.J. in Dutton [1972] 1
Q.B. 373, for he regarded the liability of the local authority as
arising quite independently of that of the builder. His was,
however, a minority view which derives no support from the
reasoning of this House in Anns [1978] AC 728 and cannot stand
up to analysis except on the basis (a) that the damage sustained
was physical damage and (b) that the local authority, by reason of
its ability to oversee the operation, was the direct cause of the
defective construction. Neither of these propositions in my
judgment is tenable.

The instant case is, to an extent, a stronger case than
Anns, because there the authority was under no duty to carry out
an inspection whereas here there was a clear statutory duty to



- 34 -

withold approval of the defective design. This, however, can make
no difference in principle and the reasoning of the majority in
Anns, which clearly links the liability of the local authority to
that of the builder, must equally apply. The local authority's duty
to future owners of the building to take reasonable care in
exercising its supervisory function was expressed in Anns to arise
"on principle," but it is not easy to see what the principle was,
unless it was simply the foreseeability of possible injury alone,
which, it is now clear, is not in itself enough. The only existing
principle upon which liability could be based was that propounded
in Dorset Yacht [1970] AC 1004, that is to say, that the
relationship which existed between the authority and the plaintiff
was such as to give rise to a positive duty to prevent another
person, the builder, from inflicting pecuniary injury. But in a
series of decisions in subsequent cases - in particular Curran v.
Northern Ireland Co-ownership Housing Association [1987] A.C. 718
and Hill v. Chief Constable of West Yorkshire - this House has
been unable to find in the case of other regulatory agencies with
powers as wide as or wider than those under the Public Health
Acts, such a relationship between the regulatory authority and
members of the public for whose protection the statutory powers
were conferred (see also Yuen Kun Yeu v. Attorney-General of
Hong Kong).

My Lords, I can see no reason why a local authority, by
reason of its statutory powers under the Public Health Acts or its
duties under the building regulations, should be in any different
case. Ex hypothesi there is nothing in the terms or purpose of
the statutory provisions which support the creation of a private
law right of action for breach of statutory duty. There is equally
nothing in the statutory provisions which even suggest that the
purpose of the statute was to protect owners of buildings from
economic loss. Nor is there any easily discernible reason why the
existence of the statutory duties, in contra-distinction to those
existing in the case of other regulatory agencies, should be held in
the case of a local authority to create a special relationship
imposing a private law duty to members of the public to prevent
the conduct of another person which is not itself tortious. Take
the simple example of the builder who builds a house with
inadequate foundations and presents it to his son and daughter-in-
law as a wedding present. It would be manifestly absurd, if the
son spends money on rectifying the defect which has come to
light, to hold him entitled to recover the expenditure from his
father because the gift turns out to be less advantageous than he
at first supposed. It seems to me no less absurd to hold that
nevertheless there exists between the authority which failed
properly to inspect and the donee of the property a relationship
entitling the latter to recover from the authority the expenditure
which he cannot recover from the donor. Yet that must be the
logical result of the application of Anns, unless one is to say that
the necessary relationship of proximity exists, not between the
authority and all subsequent owners and occupiers, but only
between the authority and the owners and occupiers who have
acquired a property for value. With the greatest deference to the
high authority of the opinions expressed in Anns and in Dutton, I
cannot see, once it is recognised, as I think that it has to be, that
the only damage sustained by discovery of the defective condition
of the structure is pure pecuniary loss, how those decisions can be
sustained as either an application or a permissible extension of
existing principle.

- 35 -

The question that I have found most difficult is whether,
having regard to the time which has elapsed and the enormous
amount of litigation which has been instituted in reliance upon
Anns, it is right that this House should now depart from it. In his
speech in Dorset Yacht, Lord Diplock observed, at p. 1064:

"As any proposition which relates to the duty of controlling
another man to prevent his doing damage to a third deals
with a category of civil wrongs of which the English courts
have hitherto had little experience it would not be
consistent with the methodology of the development of the
law by judicial decision that any new proposition should be
stated in wider terms than are necessary for the
determination of the present appeal. Public policy may call
for the immediate recognition of a new sub-category of
relations which are the source of the duty of this nature
additional to the sub-category described in the established
proposition, but further experience of actual cases would be
needed before the time became ripe for the coalescence of
sub-categories into a broader category of relations giving
rise to the duty, such as was effected with respect to the
duty of care of a manufacturer of products in Donoghue v.
Stevenson [1932] AC 562. Nevertheless, any new sub-
category will form part of the English law of civil wrongs
and must be consistent with its general principles."

For the reasons which I have endeavoured to express I do not
think that Anns can be regarded as consistent with those general
principles. Nor do I think that it can properly be left to stand as
a peculiar doctrine applicable simply to defective buildings, for I
do not think that its logical consequences can be contained within
so confined a compass. It may be said that to hold local
authorities liable in damages for failure effectively to perform
their regulatory functions serves a useful social purpose by
providing what is, in effect, an insurance fund from which those
who are unfortunate enough to have acquired defective premises
can recover part at least of the expense to which they have been
put or the loss of value which they have sustained. One cannot
but have sympathy with such a view although I am not sure that I
see why the burden should fall on the community at large rather
than be left to be covered by private insurance. But, in any
event, like my noble and learned friends, I think that the
achievement of beneficial social purposes by the creation of
entirely new liabilities is a matter which properly falls within the
province of the legislature and within that province alone. At the
date when Anns was decided the Defective Premises Act 1972,
enacted after a most careful consideration by the Law
Commission, had shown clearly the limits within which Parliament
had thought it right to superimpose additional liabilities upon those
previously existing at common law and it is one of the curious
features of the case that no mention even of the existence of this
important measure, let alone of its provisions - and in particular
the provision regarding the accrual of the cause of action -
appears in any of the speeches or in the summary in the Law
Reports of the argument of counsel.

There may be very sound social and political reasons for
imposing upon local authorities the burden of acting, in effect, as



- 36 -

insurers that buildings erected in their areas have been properly
constructed in accordance with the relevant building regulations.
Statute may so provide. It has not done so and I do not, for my
part, think that it is right for the courts not simply to expand
existing principles but to create at large new principles in order to
fulfil a social need in an area of consumer protection which has
already been perceived by the legislature but for which,
presumably advisedly, it has not thought it necessary to provide. I
would accordingly allow the appeal. It is unnecessary in these
circumstances to determine the interesting question of whether, in
fact, the appellants in the instant case, who took the only course
practically open to them, could be held responsible in law for the
negligence of the ex facie competent experts whom they consulted.

LORD JAUNCEY OF TULLICHETTLE

My Lords,

I have had the advantage of reading in draft the speech of
my noble and learned friends, Lord Keith of Kinkel and Lord
Bridge of Harwich. They have dealt so fully with all the
important matters which arise in this appeal that I doubt whether
anything which I say can make a useful contribution to the
decision. However, in view of the importance of the course which
they propose, I feel that I must briefly state my reasons for
agreeing to that course.

In Governors of the Peabody Donation Fund v. Sir Lindsay
Parkinson & Co. Ltd. [1985] AC 210 Lord Keith pointed out that
in each case of alleged negligence the true question was whether
the particular defendant owed to the particular plaintiff a duty of
care having the scope intended for and whether he was in breach
of that duty. A relationship of proximity in the sense used by
Lord Atkin in Donoghue v. Stevenson [1932] AC 562 must exist
before any duty of care can arise, but the scope of the duty must
depend upon all the circumstances of the case. In this appeal the
appellant defendants have accepted that there was a common law
duty of care incumbent upon them in relation to the passing of
the plans and we are therefore only concerned with the scope of
that duty. Like my noble and learned friend, Lord Keith, I prefer,
in the absence of argument, to express no view as to whether the
defendants in truth did owe such a duty.

The issue is whether the scope of the defendants' duty
extended to the avoidance of economic loss resulting from a
defect in or damage to the very property for whose safety they
bore some responsibility. The courts below, relying on Anns v.
Merton London Borough Council [1978] AC 728, held that it did.
In the 40 years after Donoghue v. Stevenson it was accepted that
the principles enunciated by Lord Atkin were limited to cases
where there was physical damage to person or to property other
than the property which gave rise to the damage and where there
was no reasonable opportunity of discovering the defect which
ultimately caused the damage (Grant v. Australian Knitting Mills
Ltd. [1936] AC 85, Farr v. Butters Brothers & Co. [1932] 2 K.B.
606). Actual damage had to occur before tortious liability for



- 37 -

negligence arose, mere apprehension of such damage giving rise to
no liability (Overseas Tankship (U.K.) Ltd. v. Morts Dock and
Engineering Co. Ltd. (The Wagon Mound) [1961] AC 388, per
Viscount Simonds, at p. 425). Furthermore, pure economic loss
unaccompanied by physical injury to person or property was not
recoverable unless there was between the parties such a special
relationship as existed in Hedley Byrne & Co. Ltd. v. Heller &
Partners Ltd. [1964] AC 465. This is quite logical because in
most cases where damage or a defect which solely affects the
article in question is discovered before it causes other damage the
owner is presented with two realistic alternatives: either he
repairs it or he discards it as useless. In either event his loss is
purely economic being the cost of repair or replacement.

However, in Dutton v. Bognor Regis Urban District Council
[1972] 1 Q.B. 373, the Court of Appeal purported to apply the
principle of Donoghue v. Stevenson to a case in which there was
no damage to person or property other than to the property with
which the duty of care was concerned. A local authority was held
liable in negligence to the second owner of a house for failing to
take reasonable care to see that the foundations thereof were
constructed in accordance with building byelaws. Serious defects
occurred in the house and the plaintiff recovered the estimated
cost of repair together with a sum representing the diminished
value of the house as repaired. Lord Denning M.R. rejected a
submission that the damage was purely economic saying, at p. 396:

"The damage done here was not solely economic loss. It
was physical damage to the house. If Mr. Tapp's submission
[for the council] were right, it would mean that if the
inspector negligently passes the house as properly built and
it collapses and injures a person, the council are liable: but
if the owner discovers the defect in time to repair it - and
he does repair it - the council are not liable. That is an
impossible distinction. They are liable in either case.

"I would say the same about the manufacturer of an
article. If he makes it negligently, with a latent defect (so
that it breaks to pieces and injures someone), he is
undoubtedly liable. Suppose that the defect is discovered in
time to prevent the injury. Surely he is liable for the cost
of repair."

In rejecting Mr. Tapp's argument, Lord Denning appears to have
impliedly accepted that a claim for pure economic loss would not
have been available to the plaintiff. However, his conclusion that
the cost of repairing a defect which had become patent in the
building or article in question was recoverable, albeit no damage
to the person or other property had resulted, extended the scope
of the Donoghue v. Stevenson duty in two respects. It extended
the scope in the first place to cover damage to the article itself
and in the second place to remedying a defect which had become
patent. Such an extension, if universally applied, would mean that
the owner of a chattel which developed a defect could recover
from the negligent manufacturer the cost of repair or replacement
at least if continued use of the chattel in its defective state was
likely to give rise to injury - a situation very different from those
in which the principle of Donoghue v. Stevenson had previously
been held to apply.

- 38 -

Anns v. Merton London Borough Council [1978] AC 728
came to this House on two preliminary questions of law, namely,
(1) whether a local authority was under any duty of care towards
owners or occupiers of houses in relation to inspection during the
building process and (2), if so, what period of limitation applied to
any such claims by owners or occupiers. The first question was by
far the more important. In order to answer the second question it
was necessary to determine when the cause of action arose but, as
Lord Wilberforce pointed out, at p. 751E, no question arose
directly at that stage as to the damages which the plaintiff could
recover. However, he considered that it was nevertheless
necessary to give some general consideration to the matter in the
context of the limitation question (p. 759F). It follows that his
observations as to damages, while no doubt of considerable
assistance to the parties, were peripheral to the two main
questions. Lord Wilberforce then went on, at pp. 759-760, to refer
to the sort of damages which might be recovered:

"The damages recoverable include all those which
foreseeably arise from the breach of the duty of care
which, as regards the council, I have held to be a duty to
take reasonable care to secure compliance with the byelaws.
Subject always to adequate proof of causation, these
damages may include damages for personal injury and
damage to property. In my opinion they may also include
damage to the dwelling house itself; for the whole purpose
of the byelaws in requiring foundations to be of a certain
standard is to prevent damage arising from weakness of the
foundations which is certain to endanger the health or
safety of occupants.

"To allow recovery for such damage to the house
follows, in my opinion, from normal principle. If
classification is required, the relevant damage is in my
opinion material, physical damage, and what is recoverable
is the amount of expenditure necessary to restore the
dwelling to a condition in which it is no longer a danger to
the health or safety of persons occupying and possibly
(depending on the circumstances) expenses arising from
necessary displacement. On the question of damages
generally I have derived much assistance from the judgment
(dissenting on this point, but of strong persuasive force) of
Laskin J. in the Canadian Supreme Court case of Rivtow
Marine Ltd. v. Washington Iron Works [1973] 6 W.W.R. 692,
715 and from the judgments of the New Zealand Court of
Appeal (furnished by courtesy of that court) in Bowen v.
Paramount Builders (Hamilton) Ltd. [1975] 2 N.Z.L.R. 546."

Lord Wilberforce then posed the question, "When does the cause of
action arise?" and gave the answer, "It can only arise when the
state of the building is such that there is present or imminent
danger to the health or safety of persons occupying it." He went
on to hold that Dutton v. Bognor Regis Urban District Council
had, in the result, been rightly decided.

My Lords, Lord Wilberforce justified inclusion of damages
for damage to the house itself as following from normal principle,
by which I understand him to be referring to that which was
propounded in Donoghue v. Stevenson [1932] AC 562 and applied



- 39 -

in Dorset Yacht Co. Ltd. v. Home Office [1970] AC 1004. Two
matters emerge clearly from Lord Atkin's speech in Donoghue v.
Stevenson, namely, (1) that damage to the offending article was
not within the scope of the duty and (2) that the duty only
extended to articles which were likely to be used before a
reasonable opportunity of inspection had occurred. This second
matter was again emphasised by Lord Wright in Grant v.
Australian Knitting Mills [1936] AC 85, 105. Application of the
principle enunciated by Lord Atkin in Donoghue v. Stevenson would
therefore appear to negative rather than support the recovery of
damages for damage to the house itself detected before the
damage had caused resultant injury to persons or other property.
Dorset Yacht takes the matter no further and among British cases
only in Dutton can support be found for such an application of the
principle. Lord Wilberforce derived support for his conclusion from
two Commonwealth cases. In Rivtow Marine Ltd. v. Washington
Iron Works (1973) 40 D.L.R. (3d) 530, the Supreme Court of
Canada by a majority of seven to two rejected a claim against
manufacturers for the cost of repairing a dangerous defect in a
crane upon the ground that the manufacturer of a potentially
dangerous article was not liable in tort for damage arising in the
article itself or for economic loss arising from the defect in the
article. Laskin J., however, in a dissenting judgment, after
considering the liability of the manufacturers for injury to
consumers or users of their products resulting from negligence
stated, at p. 552:

"This rationale embraces, in my opinion, threatened physical
harm from a negligently-designed and manufactured product
resulting in economic loss. I need not decide whether it
extends to claims for economic loss where there is no
threat of physical harm or to claims for damage, without
more, to the defective product.

"It is foreseeable injury to person or to property
which supports recovery for economic loss suffered by a
consumer or user who is fortunate enough to avert such
injury. If recovery for economic loss is allowed when such
injury is suffered, I see no reason to deny it when the
threatened injury is forestalled."

In Bowen v. Paramount Builders (Hamilton) Ltd. [1977] 1 N.Z.L.R.
394, the New Zealand Court of Appeal held that where a latent
defect created by a builder's negligence caused damage to the
structure an action of damages would lie on the ground of it being
physical damage. Richmond P., after asking the question whether
damage to the house itself gave rise to a cause of action, applied
the principle of Donoghue v. Stevenson to a builder erecting a
house as follows, at p. 410:

"He is under a duty of care not to create latent sources of
physical danger to the person or property of third persons
whom he ought reasonably to foresee as likely to be
affected thereby. If the latent defect causes actual
physical damage to the structure of the house then I can
see no reason in principle why such damage should not give
rise to a cause of action, at any rate if that damage occurs
after the house has been purchased from the original
owner."

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In support of this proposition he relied on the view of Lord
Denning M.R. in Dutton v. Bognor Regis Urban District Council
[1972] 1 Q.B. 373 and upon the American case of Quackenbush v.
Ford Motor Co., 167 App.Div. 433; 153 N.Y.S. 131 - a case whose
authority must now be substantially destroyed by the decision of
the Supreme Court in East River Steamship Corporation v.
Transamerica Delaval Inc. (1986) 106 S.Ct. 2295, to the effect that
no liability in negligence attached to a manufacturer whose
product malfunctioned injuring only the product itself and causing
pure economic loss. This decision of the Supreme Court is in
complete accord with the decision of the majority of the Supreme
Court of Canada in Rivtow Marine Ltd. v. Washington Iron Works.
If Quackenbush v. Ford Motor Co. is no longer good law the only
remaining support for Richmond. P.'s proposition is Dutton.

In D. & F. Estates Ltd. v. Church Commissioners for
England [1989] AC 177 my noble and learned friends, Lord Bridge
of Harwich and Lord Oliver of Aylmerton were only able to
reconcile the decision in Anns v. Merton London Borough Council
[1978] AC 728 with the principle of Donoghue v. Stevenson upon
the basis that in a complex structure the constituent parts can be
treated as separate items of property distinct from the part which
has given rise to the damage. Lord Bridge after stating that when
the hidden defect in a chattel is discovered before it causes
external injury or damage there is no room for the application of
the Donoghue v. Stevenson principle, said, at p. 206:

"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."

Lord Oliver, at p. 211B, said that Anns had introduced in relation
to the construction of buildings an entirely new type of product
liability, if not, indeed, an entirely novel concept of the tort of
negligence. He later said, at p. 212:

"The proposition that damages are recoverable in tort for
negligent manufacture when the only damage sustained is
either an initial defect in or subsequent injury to the very
thing that is manufactured is one which is peculiar to the
construction of a building and is, I think, logically explicable
only on the hypothesis suggested by my noble and learned
friend, Lord Bridge of Harwich, that in the case of such a
complicated structure the other constituent parts can be
treated as separate items of property distinct from that
portion of the whole which has given rise to the damage -
for instance, in Anns' case, treating the defective
foundations as something distinct from the remainder of the
building. So regarded this would be no more than the
ordinary application of the Donoghue v. Stevenson principle.
It is true that in such a case the damages would include,
and in some cases might be restricted to, the costs of



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replacing or making good the defective part, but that would
be because such remedial work would be essential to the
repair of the property which had been damaged by it."

My Lords I agree with the views of my noble and learned
friend, Lord Bridge of Harwich, in this appeal that to apply the
complex structure theory to a house so that each part of the
entire structure is treated as a separate piece of property is quite
unrealistic. A builder who builds a house from foundations
upwards is creating a single integrated unit of which the individual
components are interdependent. To treat the foundations as a
piece of property separate from the walls or the floors is a wholly
artificial exercise. If the foundations are inadequate the whole
house is affected. Furthermore, if the complex structure theory is
tenable there is no reason in principle why it should not also be
applied to chattels consisting of integrated parts such as a ship or
a piece of machinery. The consequences of such an application
would be far reaching. It seems to me that the only context for
the complex structure theory in the case of a building would be
where one integral component of the structure was built by a
separate contractor and where a defect in such a component had
caused damage to other parts of the structure, e.g. a steel frame
erected by a specialist contractor which failed to give adequate
support to floors or walls. Defects in such ancillary equipment as
central heating boilers or electrical installations would be subject
to the normal Donoghue v. Stevenson principle if such defects gave
rise to damage to other parts of the building.

My Lords if, as I believe, the decision in Anns cannot be
reconciled with the principle of Donoghue v. Stevenson upon the
basis of the complex structure theory, is there any other
established principle upon which it could be justified? When Lord
Wilberforce said that the the damages recoverable might include
those for damage to the house itself, it is clear that he was
referring to damage separate from but caused by the defective
foundations. However, the measure of such damages would be
limited to what was necessary to remove the danger to the health
or safety of the occupants, which might well include the cost of
repairing the initial defect but might equally well be less than
that required to repair all the damage. Furthermore, the cause of
action would only arise when there was present or imminent
danger to the occupants. Thus the two prerequisites to an action
based on Anns were (1) the existence of material physical damage
resulting from the original defect and (2) the presence or
imminence of danger associated with that damage. These
prerequisites give rise to a number of difficulties. In the first
place, if the basis of the duty is that persons should not be placed
in a position of danger it is difficult to draw a logical distinction
between danger which manifests itself because of physical damage
and danger which is discovered fortuitously, for example, by a
survey or inspection. Why, it might be asked, should the
houseowner in the latter case have no right of action if he takes
steps to remove the danger before physical damage has occurred
but have such a right if he waits until damage has occurred when
remedial costs may very well be much higher? In the second
place, the concept of imminent danger gives rise to considerable
practical difficulties. Is a danger imminent when it is bound to
occur, albeit not for some time, or is it imminent only if it is
likely to occur in the immediate future? Different persons will



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have different views as to what constitutes imminence and
plaintiffs will be in doubt as to when their causes of action
accrue. If the house collapses without any warning and injures
nobody any danger inherent in its construction has been removed.
It would be a very strange result that the owner should have no
remedy in such an event but should have a remedy if the danger
had manifested itself before collapse.

My Lords, as my noble and learned friend, Lord Keith of
Kinkel, has pointed out, Anns has given rise to considerable
litigation and has long been regarded as an unsatisfactory decision.
It is clear, particularly from the careful analysis to which it was
subjected by Lord Bridge of Harwich and Lord Oliver of Aylmerton
in D. & F. Estates Ltd. v. Church Commissioners for England that
it was not based on any recognized principle. It is further
apparent that it conflicts with established principles in a number
of respects to which I have already referred. If it were to stand
as good law there is no logical reason why it should not extend to
defective chattels thereby opening the door to a mass of product
liability claims which the law has not previously entertained. I
therefore agree with my noble and learned friend, Lord Keith of
Kinkel, that Anns was wrongly decided and should be departed
from to the extent which he proposes.

Parliament imposed a liability on builders by the Defective
Premises Act 1972 - a liability which falls far short of that which
would be imposed upon them by Anns. There can therefore be no
policy reason for imposing a higher common law duty on builders,
from which it follows that there is equally no policy reason for
imposing such a high duty on local authorities. Parliament is far
better equipped than the courts to take policy decisions in the
field of consumer protection.

I would allow the appeal.

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