• Abstract and Figures
• Public Full-text

Economic Loss in Construction Cases

I. INTRODUCTION

The demise of Anns v Merton London Borough Council1 in D&F Estates Ltd v Church Commissioners2 and Murphy v Brentwood District Council3 has not been accepted in other Commonwealth jurisdictions. The New Zealand Court of Appeal4, the Supreme Court of Canada5 and the High Court of Australia6 have each departed from the positions adopted by the House of Lords.

Today I wish to put forward two arguments. First, that D&F Estates Ltd v Church Commissioners7 and Murphy v Brentwood District Council8 are unimpeachably correct. Second, and perhaps more interestingly, that a purchaser of premises who is forced to incur expenditure in making safe premises which are dangerous because of the negligence of its builder, should and, in principle, does have a claim against the builder in unjust enrichment. The irresistible logic which led to the rejection of a claim based upon a tort does not apply to other possible causes of action. In order to make good these claims it is necessary to consider a large amount of material from disparate areas of law.

II. TORTS Two incompatible conceptions of the law of torts are discernible within the common law.9 The first commonly held but mistaken conception is that the defendant should be liable where he is at fault for causing the claimant loss unless there is a good reason why not. This model dominates liability for negligence. Lord Wilberforce in Anns v Merton London Borough Council10 set out a two stage test for the existence of a duty of care

1 [1978] AC 728, HL. 2 [1989] 1 AC 177, HL. 3 [1991] 1 AC 398, HL. 4 Invercargill City Council v Hamlin [1994] 3 NZLR 513; aff’d [1996] AC 624 (PC). 5 Winnipeg Condominium Corporation v Bird Construction Co [1995] 1 SCR 85 (Sup Ct of Canada). 6 Bryan v Maloney (1995) 182 CLR 609 (High Ct of Australia). 7 [1989] 1 AC 177, HL. 8 [1991] 1 AC 398, HL. 9 E Weinrib, “The Disintegration of Duty” in M Madden (ed) Exploring Tort Law (2005), 143. 10 [1978] AC 728, HL. which is the classic statement of this approach.11 The first limb of this test is that the defendant could have reasonably foreseen that his negligence would cause the claimant loss. This adds nothing to the principle that a defendant cannot be liable for negligence unless he is at fault in relation to the harm suffered by the claimant. This has caused some to conclude that the concept of a ‘duty of care’ is redundant.12 The second limb enables any considerations which ought to negative the duty to be taken into account. This could encompass every reason imaginable for denying liability. For example, imposing liability on the police for carelessly failing to catch criminals may be thought to create a perverse incentive to be excessively diligent in obtaining convictions;13 or imposing liability on a judge for the careless conduct of a trial may undermine the finality of dispute resolution;14 or holding the auditor of a company liable for the losses suffered by all those who invested in that company on the basis of carelessly prepared accounts would be to impose liability of indeterminate scope and amount.15

The House of Lords made a great deal of their abandonment of Lord Wilberforce’s two stage test and its substitution with a three stage test: (1) was the claimant’s loss as a result of the defendant’s negligence reasonably foreseeable? (2) was there a relationship of proximity? (3) would imposing liability be fair, just and reasonable?16 However, the underlying approach is essentially the same. The first stage is otiose, whilst the second and third stages collapse into a search for the good reasons which can be given for denying liability. (Can something be fair whilst unjust? Unreasonable but fair?)

11 [1978] AC 728,HL 751. 12 O W Holmes “The Path of Law” (1897) 10 H L Rev 457, 471-472; P Winfield “Duties in Tortious Negligence” (1934) 34 Col L Rev 41; W Buckland “The Duty to Take Care” (1935) 51 LQR 637; J Stone, The Province and Function of Law (1946) 181-182; B Hepple “Negligence: The Search for Coherence” (1997) 50 CLP 69. Compare Bourhill v Young [1943] AC 92, HL and Palsgraf v Long Island Railroad Co 248 NY 339, 162 NE 99. 13 Hill v Chief Constable of West Yorkshire [1989] AC 53, HL. The Guildford Four and Birmingham Six cases show that the concern not to apply pressure on the police to obtain convictions and thereby encourage ‘excessive diligence’ is not a fanciful one. 14 Sirros v Moore [1975] QB 118, CA. 15 Caparo Industries plc v Dickman [1990] 2 AC 605, HL. 16 Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] AC 210, HL, 239-241 per Lord Keith; Yuen Kun-Yeu v Attorney General of Hong Kong [1988] AC 175, PC(HK), 190-194 per Lord Keith; Rowling v Takaro Properties Ltd [1988] AC 473, PC(NZ), 501 per Lord Keith; Hill v Chief Constable of West Yorkshire [1989] AC 53, HL, 60 per Lord Keith; Caparo Industries plc v Dickman [1990] 2 AC 605, HL, 617-618 per Lord Bridge, 633 per Lord Oliver, 658 per Lord Jauncey. On this conception “the overall object of tort law is to define cases in which the law may justly hold one party liable to compensate another.”17 Within liability for negligence “damage is the gist”18, and where there is no recovery for negligently inflicted loss it needs justification. Under this model, the role of the ‘duty of care’ in liability for negligence is as a “control device”,19 primarily concerned with the diverse reasons why a particular defendant has an immunity from being liable for carelessly causing loss.20

There is another conception of the law of torts.

“Tort” comes indirectly from the Latin tortus which means crooked or twisted. In modern French, “tu as tort” means “you are wrong.” “Wrong” has the same origin as “wrung” which is, again, twisted. We have a law of torts (plural) not a law of tort, just as we have a law of wrongs not a law of wrong.

A tort is a species of wrong.21 A wrong is a breach of a duty owed to someone else. A breach of a duty owed to someone else is an infringement of a right they have against the tortfeasor. Before a defendant can be characterised as a tortfeasor the anterior question of whether the claimant had a right against him must be answered.22 The law of torts is concerned with the secondary obligations generated by the infringement of primary rights. The infringement of rights, not the infliction of loss, is the gist of the law of torts.23

17 Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22, [2003] 1 AC 32 [9] per Lord Bingham; J Steyn “Perspectives of Corrective Justice in Tort Law” John Maurice Kelly Memorial Lecture 4; C Wright, “Introduction to the Law of Torts” (1942) 8 C.L.J. 238; P Devlin, The Enforcement of Morals (1965), 39- 40; cf Broome v Cassell & Co [1972] AC 1027, HL, 1114 per Lord Wilberforce. 18 Gregg v Scott [2005] UKHL 2, [2005] 2 AC 176, [99] per Baroness Hale. 19 J. Fleming “Remoteness and Duty: The Control Devices in Liability for Negligence” (1953) 31 Can. B. Rev. 471; Dorset Yacht Co Ltd v Home Office [1969] 2 QB 412, CA, 426 per Lord Denning MR; D v East Berksihire Community NHS Trust [2005] 2 AC 373, HL, [94] per Lord Nicholls. 20 Smith v Littlewoods Organisation Ltd [1987] 1 A.C. 241, HL, 280 per Lord Goff. 21P Birks “The Concept of a Civil Wrong” in D Owen (ed) Philosophical Foundations of Tort Law (1995), 29; cf OW Holmes, The Common Law (1881), 144. 22 W Blackstone, Commentaries on the Law of England (1765-1769) Vol 3, 2; Allen v Flood [1898] AC 1, HL, 28 per Cave J.; A Goodhart, “The foundations of tortious liability” (1938) 2 MLR 1. 23 Admiralty Commissioners v The Owners of the SS Amerika [1917] AC 38, HL, 55 per Lord Sumner; Donoghue v Stevenson [1932] AC 562, HL, 619 per Lord Macmillan. Many lawyers, particularly those working in the field of negligence liability, view the law in terms of causing loss through fault. However, from this perspective much of the law of torts in general, and the (non-)liability of builders for ‘pure’economic loss is inexplicable.

III Rights Cave J., in Allen v Flood24, possibly the most important decision on the English law of torts, stated: The personal rights with which we are most familiar are: 1. Rights of reputation; 2. Rights of bodily safety and freedom; 3. Rights of property.

Cave J. is giving a list of the classes of rights which are personal to us and which are exigible against the rest of the world. Once we have a picture of our rights, the negative is an image of the liberties of others.

Property rights, the third category on Cave J.’s list, have a number of characteristics, not one of which is a necessary characteristic of all rights so described. A simple definition of what this family of rights have in common which would accord with all usages is therefore unobtainable. Further a single litmus test cannot be given by which property rights can be differentiated from other forms of right.

A core example of a property right is a tenant’s interest in premises under a lease. The tenant’s right has four characteristics which members of the family of property rights frequently possess. First the right is in relation to a subject matter which can be transferred independently of the right itself but in relation to which the right can persist after transfer. So, if the landlord sells the premises the tenant’s right under the lease will persist after sale and bind the purchaser. A beneficiary under a trust has a property right in this sense, although the subject matter of the beneficiary’s right is not a physical thing such as a house but the trustee’s right or rights. If a trustee transfers his right to someone other than a bona fide purchaser for value without notice of the beneficiary’s right, the beneficiary’s right persists in relation to the right transferred. However, this characteristic

24 [1898] 1 AC 1. of persistence is not found in relation to intellectual property rights, as these rights have no subject matter independent of the right itself which is capable of separate transfer.

A second characteristic of property rights which a tenant’s right under a lease usually possesses is that the right itself is capable of transfer. A leasehold interest can be sold, bequeathed or given away. Again however, not all ‘property rights’ share this characteristic. Some ‘property rights’ are also inalienable. For example the right to run a market may be incapable of transfer or it may be a term of a lease that the lease cannot be assigned.

A third characteristic of property rights is that they are special rights not everyone has (eg my right to my Rolls Royce car) unlike other rights held by everyone (eg our right to freedom of movement, our right to bodily safety). It may be objected that our right not to be detained against our will is acquired from birth like our right to bodily safety, but unlike this right may be lost. The State may acquire a privilege to lock me up (eg if I commit a crime for which a sentence of imprisonment is applicable). However this privilege is only conferred upon the State; no one else has a privilege enabling them to lock up criminals.

The fourth characteristic of a property right which a leasehold interest has is that it is exigible against the rest of the world (erga omnes). It is this characteristic which is important for this work, and it is this characteristic which property rights share with the other rights in Cave J.’s list. Property rights are the category most lawyers first think of when asked to describe a right good against everyone else. Exigibility against the rest of the world distinguishes a right in rem from a right in personam. If I own a car no one can take it from me without my consent. Further than this, others must take care not to damage my car. I have the same rights in relation to my car exigible against every other person. Against whom my right is exigible, does not necessarily determine its content. My right that you do not damage my car is not absolute; if my car is unintentionally damaged without fault I have no claim. We sometimes confer the label ‘property rights’ upon rights which do not share the characteristic of exigibility against every other person. ‘Property’ is sometimes used in a broader sense of wealth. For example, all of a company’s receivables (i.e. the claims it has against others) are referred to as a company’s property for the purposes of the insolvency legislation.25 If a legal estate to land is held on trust the beneficiary has a right to the legal owner’s right to the land, but no right good against anyone other than the rightholder from time to time. So a beneficiary has no standing in her own name to sue a squatter in the tort of trespass. Similarly if a car is held on trust the beneficiary will not have standing to sue a thief in the tort of conversion as her right is not exigible against everyone else. The beneficiary has no direct right to the tangible asset itself good against the rest of the world, but merely a right to the trustee’s right.

It is generally only our rights in tangible things and intellectual property that give rise to rights which are exigible against the rest of the world, the infringement of which are tortious.26 So, a contractual licensee who is not in exclusive possession does not have standing to sue for a nuisance which affects his use of land because a licence, unlike a lease, is a mere personal right and is not exigible against the rest of the world.27 The holder of a proprietary interest in land, whether it is a fee simple, a tenancy, a reversionary interest or an easement, has standing to sue to the extent that his right to the land is adversely affected by someone else because he has a right good against everyone else.

In order to have standing to sue it must be the claimant’s property right which is interfered with, not simply the property itself. For example a landlord will not be able to bring a claim for mere trespass as he does not have an immediate right to possess; such an action can only be brought by a tenant. The landlord could only sue if he could show such harm to the property as to affect his reversionary right.

C. Undertakings 25 Insolvency Act 1986, s 436. 26 Cf Lumley v Gye (1853) 2 E & B 216, 118 ER 749. 27 Hunter v Canary Wharf Ltd [1997] AC 655, HL. Cf Manchester Airport plc v Dutton [2000] QB 133, CA. The claim rights which we have which are good against the rest of the world are of a negative kind. I can exclude you from my property, you may not touch me without consent and you may not harm my reputation. I cannot compel you to repair my car, cure my illness or speak well of me. All of us have a liberty to choose to behave as we please, so long as we do not infringe the rights of others. We do not have rights good against the rest of the world to compel others to come to our assistance. A modern day Priest and Levite would not infringe any right of the man stripped of his raiment when they walk on by on the other side.

Not all of our rights are exigible against the rest of the world. It is possible to make an undertaking to another which gives rise to a right which is only exigible against the person making the undertaking. Undertakings are like water. We can add a number of things to give the undertaking different strengths and flavours but the central element remains the same. The core example of course is a right conferred by contract. Promises which are intended to have legal effect and are supported by consideration are legally binding. However, contract is not the only way of voluntarily creating rights. Bare promises in deeds, promissory estoppel and express trusts are examples of ways of voluntarily creating rights outside of contract. These rights are similarly only exigible against the person making the undertaking. A promisee under a deed or a beneficiary of an express declaration of trust may be wholly ignorant of the right they have, but this is of no legal significance. The right is voluntarily created by the promisor or trustee even though the beneficiary has no knowledge of his right.

Doctors are at liberty to walk past the sick, but if a sign is put up saying “Public Hospital” a duty has been assumed that care will be taken of those who turn up expecting treatment.28 The rights that we have which are good against the rest of the world entitle us to damages to the extent that our position has been worsened by the defendant’s conduct. Voluntarily assumed obligations commonly entitle us to be placed in the better position we would have been in if the defendant had taken care.

28 Barnett v Chelsea & Kensington Hospital Management Committee [1969] 1 QB 428. Another example of a voluntarily created right exigible against only one person arises from bailment. My ownership of my car gives rise to a right good against you that you will not by your actions carelessly damage it. However you are not under a positive obligation to take care that my car is not damaged by a third party. If I entrust my car to you, you come under a voluntarily assumed positive obligation that care is taken of my car.29 This right of the bailor is only exigible against the bailee. This right need not be contractual as the bailment may be gratuitous.30

Unlike a contractual duty, the breach of a gratuitously assumed duty is not actionable without proof of consequential loss. Where the loss takes the form of damage to person or property, this can mistakenly cause us to think that the relevant right is the same right as that we have against persons generally. The different characteristics of the voluntarily assumed obligation demonstrate that this is not so.

Again, as with an express trust or bare promise in a deed, it is irrelevant to the creation of the right that the rightholder is unaware of the assumption of responsibility. If a sub- bailee is aware of the head bailment31 he comes under a duty to the bailor that care will be taken of the goods, even though the bailor may be unaware of the sub-bailment. A finder of someone else’s stray cat who takes it into his custody comes under a duty to take care of it, even though the owner is unaware of the finding.32 Until recently, finders although under a duty of care, were not classed as bailees. Today, little turns on whether a finder should be classed as a bailee or not. The obligation of the finder is not merely to take care of the goods but to take such steps “as are reasonable to acquaint the true owner of the finding and the present whereabouts of the chattel.”33

29 East West Corp v DKBS A/S [2003] EWCA Civ 83; [2003] QB 1509, [24] per Mance LJ. 30 Coggs v Bernard (1703) 2 Ld Raym 909, 92 ER 107. 31 The Pioneer Container [1994] 2 AC 324, PC (HK). 32 Newman v Bourne & Hillingsworth [1915] 3 TLR 209; J Kortmann, Altruism in Private Law (2005) 140- 142. 33 Parker v British Airways Board [1982] QB 1004, CA, 1017 per Donaldson LJ. It would be possible to divide our primary rights into those which have been voluntarily created by the person owing the duty and those which arise for other reasons. The infringement of these rights would not reflect the division between torts and breach of contract. The law of torts, in particular liability for negligence, protects many voluntarily created rights.34 IV Economic Loss 1. Policy Arguments Economic loss, whether deliberately or carelessly inflicted, is not, without more, actionable. When it is assumed that allloss caused by another’s fault should be recoverable, this exclusionary rule is difficult to explain. The search for an answer is ongoing but, as with those who set sail looking for the edge of the world, an ultimately fruitless exercise based upon a mistaken premise.

One policy explanation is that economic loss generally gives rise to a problem of indeterminate liability which justifies a ‘bright line’ exclusionary rule.35 So, it is said, a car manufacturer should not be liable for the potentially huge economic losses to a large number of claimants caused when one of its defective cars breaks down in the Dartford Tunnel during the rush hour.36

On its own, this justification appears unsatisfactory. First it is not always the case that the recovery of economic loss would give rise to an indeterminate number of claimants seeking to recover an indeterminate amount. In the common case of someone who purchases a defective thing, as exemplified by Murphy v Brentwood,37 the only possible claimant is the purchaser and their economic loss is usually determined by the value of what they have bought. Second there may be indeterminacy problems in other contexts but this is not generally seen as a sufficient reason to exclude liability. A chemical factory

34 Cf J Beale, “Gratuitous Undertakings” (1891-1892) 5 HLR 222; E Jenks, “On Negligence and Deceit in the Law of Torts” (1910) 26 LQR 159, 162. 35 Ultramares Corporation v Touche 255 NY 170, 179 (1931) per Cardozo CJ.; F James “Limitations on Liability for Economic Loss Caused by Negligence: A Pragmatic Appraisal” (1972) 25 Van L R 43, 45; Cf Jan de Nul (UK) Ltd v AXA Royale Belge SA [2002] EWCA Civ 209, [2002] 1 All ER (Comm) 767, [83] per Schiemann LJ. 36 J. Stapleton, “Duty of Care and Economic Loss: A Wider Agenda” 107 (1991) L.Q.R. 249, 254. 37 [1991] 1 AC 398, HL. which explodes may poison thousands and affect children born for generations. The large number of possible claimants is not thought, at least today,38 to provide a sufficient justification to allow the defendant manufacturer to escape liability: quite the reverse.

Professor Stapleton has sought to draw a distinction between there being an extensive number of claimants and an indeterminate number of claimants.39 Neither the volume nor the uncertainty of the number of claimants justifies an exclusionary rule. The number of claimants arising from the chemical leak may be unknowable in advance and uncertain for many years, but this does not provide the defendants with a privilege to poison.

Other policy explanations can be postulated. In some cases a right not to have economic harm inflicted upon us would deter competition, something which is seen as beneficial in a capitalist economy. Further a general right not to have economic loss inflicted upon us could deter freedom of speech, by for example preventing the criticism of the ethics of certain businesses. Regardless of whether their grievances are legitimate or without basis, Greenpeace are committing no wrong, so long as they are not dishonest, in describing Esso as “the world’s number one climate criminal” and encouraging a, partially successful, boycott of Esso’s products.40 However, these arguments are clearly not of general application.

Another justification given is that economic loss is less important than other forms of loss. We have a hierarchy of interests which we protect. At the summit is life and bodily safety, below that tangible property and below that economic interests.41 Whilst this view is attractive, it cannot provide a complete answer. Whilst we might agree that economic interests are less important than bodily safety, this does not explain why they are undeserving of protection. Further whilst it is possible to have an interest in property beyond the economic (my love of my wedding ring for example) this is not true of most

38 Cf Donoghue v Stevenson [1932] AC 562, HL, 600 per Lord Tomlin dissenting. 39 J. Stapleton, “Duty of Care Factors: a Selection from Judicial Menus” in Essays in Celebration of John Fleming (Cane and Stapleton edd., 1998) 59, 66, 76. 40 http://www.greenpeace.org.uk/climate/climatecriminals/esso/index.cfm. Last visit 1 September 2006. I commit no tort by citing this web address. It is fair comment. 41 Eg J.A. Weir, Casebook on Tort (10th ed., 2004), 146. of the property we own. Corporations, for example, do not have interests in property over and above the economic.

Ultimately, there is no need to look for a single reason why we do not have a right good against the rest of the world not to have economic loss inflicted upon us. The common law could start with the assumption that we each have a right not to have loss inflicted upon us. It would then be necessary to carve out wide ranging exceptions where this would be objectionable as a matter of policy. This is not the common law’s starting point. There is no ‘exclusionary rule’ for economic loss. The common law’s starting position is that the infliction of economic loss does not per se infringe any right of the claimant.42 This is true of both intentionally and negligently inflicted economic loss. On a rights based model it is not the ocean of no-liability which requires mapping, but the isolated islands of rights.

2. Intentionally Caused That we do not have a right good against the rest of the world not to suffer economic harm was firmly established in the 1890s in a trio of decisions of the House of Lords: Mogul Steamship Co v McGregor Gow & Co43, Bradford v Pickles44 and Allen v Flood.45

In the first case in the series, Mogul Steamship, a group of shipowners, in order to secure control of the tea trade with China, offered freight rebates to all shippers prepared to deal with them exclusively. The rebate was withdrawn from shippers who traded with carriers outside of the association. The claimants were rival shipowners who suffered economic loss, as they could no longer carry tea profitably. As the defendant shipowners had not

42 P Benson “The Basis for Excluding Liability for Economic Loss in Tort Law” in D Owen (ed) Philosophical Foundations of Tort law (1995) 427; R Brown, “Still crazy after all these years: Anns, Cooper v Hobart and pure economic loss” (2003) 36 Uni of Brit Col L Rev 159; N Jansen, “Duties and Rights in Negligence: A Comparative Historical Perspective on the European Law of Extracontractual Liability” (2004) 24 OJLS 443, 444; A Beever, “A Rights-Based Approach to the Recovery of Economic Loss in Negligence” (2004) 4 OUCLJ 25. 43 [1892] AC 25, HL. 44 [1895] AC 587, HL. 45 [1898] AC 1, HL. infringed any right of the claimant the loss was not actionable, it was damnum sine injuria.46

In Bradford v Pickles47 the claimants acquired land in order to sink a borehole to obtain a water supply for local residents. The defendant acquired land further up the slope from the claimants’ works and sunk a bore of his own in order to prevent water percolating through to the claimants’ land. This was done with the intention of extracting from the claimants a high price for the land purchased. The defendant had no other commercial object by his actions. It was held that the claimants had no (property) right to the percolating water. Without a right exigible against the rest of the world to the percolating water, no tort was committed when the supply was cut.

Bradford v Pickles is sometimes doubted and contrasted with the decision of the Court of Appeal in Hollywood Silver Fox Farm v Emmett.48 The claimants bred silver foxes. After a disagreement between the claimants and the defendant, an adjoining landowner, the defendant sent his son to fire a gun on the boundary of his land closest to the vixens’ pens. The shooting occurred on four nights. The noise affected the vixens, some did not mate and one ate her cubs. It was found that the shooting had been carried out with the intention of frightening the vixens. The action for nuisance was successful.

Hollywood Silver Fox Farm does not demonstrate that a malicious motive alone can convert a non-tortious act into a tortious one. Unlike Bradford, the claimants did have rights good against the rest of the world which they were arguing were infringed by Emmett’s actions. Both their rights to the foxes they owned and their right to the quiet enjoyment of their land were good against the rest of the world, including the defendant. These rights are not, however, absolute. If in shooting his gun he had been hunting vermin he would have escaped liability.49 If, however, he had been shooting his gun into the air on a whim, because he happened to like loud noises, he would still have been

46 See also Victoria Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479 (High Ct of Australia). 47 Cf Giles v Walker (1890) LR 24 QBD 652. 48 [1936] 2 KB 468. 49 [1936] 2 KB 468, 473. liable. Whether he is at liable is in part determined by whether his actions were of social value. It was not the malice itself which made his actions tortious but the fact that the malice showed that his actions were pointless. This could have been demonstrated in other ways. Where the defendant has not infringed any right the claimant has against him, the defendant’s malicious motive in inflicting loss cannot make his actions tortious.

Similarly in the “great case”50 Allen v Flood the claimants were shipwrights, engaged each day to work on their employer’s ship. The defendant was the secretary of a union who informed his employer that if the claimants continued to be re-engaged the union members would not work. The employer consequently refused to re-engage the claimants, who claimed their consequent economic loss from the defendant. The claim failed. The intentional infliction of economic harm is not actionable.

Some have claimed that the fact that ‘pure’ economic loss is not recoverable is part of the general rule that there is no liability for failure to confer a benefit or prevent the claimant suffering harm.51 These rules are both explained by the general principle that loss which is not consequent upon the infringement of a right is not actionable, but they are not one and the same rule, as is demonstrated by these cases where the defendant by his conduct makes the defendant economically worse off, but infringes no right in doing so.

3. Negligently Caused It is sometimes argued that because intentionally inflicted economic harm is not per se actionable that it follows a fortiori that negligently inflicted economic harm should not be actionable.52 This is not so. Although contrary to this work’s thesis, it would be coherent for the law to adopt the position that intentionally inflicted, but useful, economic harm was not actionable whilst carelessly inflicted, but useless, economic harm was.

50 W N Hohfeld, “Some Fundamental Legal Conceptions as Applied in Judicial Reasoning” (1913) 23 Yale LJ 16, 40. See also T Weir, Economic Torts (1997), 21. 51 P Benson “The Basis for Excluding Liability for Economic Loss in Tort Law” in D Owen (ed) Philosophical Foundations of Tort law (1995) 427, 444-450. 52 Eg S. Perry “Protected Interests and Undertakings in the Law of Negligence” (1992) 42 UTLJ 247, 264. In assessing whether a defendant’s actions are negligent, courts, in a rough and ready way, take into account the social benefits and costs of an activity. A cancer drug which has the foreseeable consequence of causing a patient’s hair to drop out has not necessarily been negligently manufactured, if no alternative cure could have been manufactured without the side effect. A manufacturer of a constipation cure with the same foreseeable side effect will be liable for negligently making the consumers bald. In Tuttle v Buck53 the defendant set up a barbershop near to the claimant’s barbershop and undercut the defendant’s prices. He did so out of malice with the deliberate intention of driving the defendant out of business. The claimant suffered serious economic loss and sought recovery from the defendant. Following Allen v Flood, the defendant’s actions would not be actionable in the Commonwealth today. However, the defendant’s actions were useful for the wider community. Competition is generally, if not always, healthy in a capitalist economy. Put another way, cheap haircuts are a good thing. It would be coherent to deny recovery in a case where the intentionally inflicted economic loss was socially useful, as in Tuttle v Buck, but to allow it where the loss whilst inflicted unintentionally was valueless.

However, even where the actions which intentionally inflict economic loss have no utility whatsoever, they will not be actionable unless a right has been infringed. The common practices in house purchases of gazumping and gazundering commonly cause others loss but are not actionable although they have no discernible social value. Bradford v Pickles demonstrates that intentional economic harm is not actionable even where useless. Pickles’ actions, unlike Buck’s, were of no wider benefit. That carelessly inflicted economic loss where the defendant’s actions have no utility is not per se actionable was settled in Cattle v Stockton Waterworks Co54 in the nineteenth century and reasserted in Weller & Co v Foot and Mouth Disease Research Institute55 in the twentieth.

53 119 NW 946 (1909). 54 (1875) LR 10 QB 453 (Blackburn J.); Dickson v Reuter’s Telegram Co (1877) 3 CPD 1; cf Simpson v Thomson (1877) 3 App Cas 279, HL. 55 [1966] 1 QB 569. See also Societe Anonyme de Remorquage a Helice v Bennets [1911] 1 KB 243; Compagnie Francaise de Navigation a Vapeur v Anglo-American Sipping Co (1921) 9 Lloyd’s List L Rep 464, CA; The World Harmony [1967] P 341; SCM (UK) Ltd v Whittall & Sons [1971] 1 QB 337, CA. The claimants in Caparo Industries plc v Dickman56 faced the same hurdle as the claimant in Bradford v Pickles. The claimants suffered loss as a result of share dealing they entered into as a result of relying upon a negligent auditors’ report prepared for the company in which they bought shares. It was held that the auditors owed the investors no duty take care to prevent them suffering this loss. The bulk of the speeches in the House of Lords are concerned with an attempt to articulate good reasons why the defendant auditors should not be liable to the investors despite their carelessly having caused them foreseeable loss. However, this was unnecessary. The company contract with the auditors for the preparation of the report for the company’s benefit, not that of potential investors. It could not therefore be said that there was an assumption of responsibility towards all potential investors.57 We do not have rights good against the rest of the world not to be given incorrect information, so as to avoid making losses from share dealing. We merely have a liberty to buy shares. Unless there was a reason arising from a relationship between the claimants and defendant why the claimants had a right against the defendant, for example a contract, no claim was possible.

4. Consequential Loss and Rights Against the Rest of the World Where economic loss is consequent upon the infringement of a right, such loss is recoverable. Those who are intentionally or negligently injured by another can recover for the economic loss consequent upon the infringement of their right to bodily safety, most commonly their costs of care or loss of earnings. Where my right to my reputation is infringed through defamation, the economic loss consequent upon the infringement of the right, for example the loss of a job, is recoverable.58 If I am detained against my will so that I cannot work, my consequential economic losses should be recoverable. In claims based upon deceit, damages are most commonly awarded to make good consequential economic losses.

56 [1990] 2 AC 605, HL; cf Morgan Crucible plc v Hill Samuel & Co Ltd [1991] Ch 295, CA; Hercules Management v Ernst & Young [1997] 2 SCR 165, 146 DLR (4th) 577 (Sup Ct of Canada); Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) (1997) 188 CLR 241 (High Ct of Australia). 57 Cf Cann v Wilson (1888) 39 Ch D 39. 58 Ratcliffe v Evans [1892] 2 QB 524, CA, 531 per Bowen LJ. Where my right to my property is infringed I can recover for the economic loss suffered as a consequence. For example, when the quiet enjoyment of my land is infringed by a private nuisance, consequential economic loss is recoverable.59 The classic illustration of the difference between economic loss consequent upon the infringement of a property right and ‘pure’ economic loss is Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd.60 The defendants’ employees were digging up the road when they negligently damaged an electricity cable which, as the defendants knew, supplied power to the claimants’ factory. The claimants were forced to pour out a molten metal melt from a furnace to prevent it damaging the furnace. The claimants lost profits consequent upon this melt and four further melts which they could have completed during the power cut. Only the lost profits consequent upon the damage to the property they owned, the melt which was lost, were recoverable. The lost profits on the hypothetical melts were irrecoverable. Lord Denning M.R. adopted a loss-based conception of the law of torts and sought to explain the result by relying upon other arguments of principle and policy.61 First, he argued that as the supplier was not liable for the economic loss caused by the cutting of the supply, nor should the contractors in cutting the cable. Second that we all run the risk of having the power supply cut. Third that there would be no end of claims. Fourth that the loss should be born by all members of the community suffering the power cut, rather than by the individual contractor. Fifth that a person suffering property damage and consequential loss was deserving of recovery.

None of these arguments explain the result. If the first four were genuinely accepted, no claim for any damages would be permissible. No explanation is given as to why the claimant who suffers economic loss as a consequence of property damage is more deserving than someone who suffers pure economic loss. This is an example of the weakness of such wholly consequentialist reasoning.

It is unnecessary to adopt the reasoning of Lord Denning in order to explain the result. The claimants had a right good against the rest of the world to the melts they owned and

59 Campbell v Paddington Corpn [1911] 1 KB 869; Lyons v Wilkins (No 1) (1896) 1 Ch 811, CA, 927. 60 [1973] QB 27, CA. 61 [1973] QB 27, CA, 37-39. the loss consequent upon the infringement of those rights should have been recoverable. If they had owned the cable which was damaged the claimants would have been able to recover all of the loss flowing from the infringement of this right, including the profits on the hypothetical melts. However, we do not have a right good against the rest of the world to make profits from operating a smelting business. This ‘pure’ economic loss is irrecoverable.

5. The Divisibility of Property Rights What counts as an infringement of my property right is not always an easy question to answer. The fact that the defendant’s careless actions preceded the claimant’s acquisition of the property damaged, or indeed its creation, does not prevent liability from arising. If a builder is careless in building a barn which is subsequently bought by a farmer, he will be liable to the farmer when it collapses and kills the farmer’s cattle, even if the cattle were acquired after the barn was built.

In Dutton v Bognor Regis UDC62 and Anns v Merton London Borough Council63 property rights were seen as readily divisible. In both cases the defendants were local authorities who were responsible for the inspection of building work. The claimants acquired a right to the premises after construction, in Dutton as purchaser in Anns as lessee. The foundations of the buildings had been carelessly inspected. After the claimants acquired their interests in the properties, damage in the form of cracks in the walls began to appear because of defects in the foundations. In both Dutton,64 in the Court of Appeal, and Anns,65 in the House of Lords, this was seen as an infringement of the claimant’s right to his property and the defendants were held liable for the consequent economic loss.

If our rights to the individual things we own were divisible, and the claimants had relied upon the survey of the local authority by not having their own competent survey carried out, this would be correct. If the law was that the houseowner’s right to the plaster on his walls was separate from the right to the house’s foundations, it would be correct to say 62 [1972] 1 QB 373, CA. 63 [1978] AC 728, HL. 64 [1972] 1 QB 373, 396 per Lord Denning MR cf 403 per Sachs LJ, 415 per Stamp LJ. 65 [1978] AC 728, HL, 759 per Lord Wilberforce. that the claim was properly characterised as one for property damage. The defendant’s carelessness would have infringed the claimant’s property right to the plaster, just as in the example of the builder the right to the cattle is separate from the right to the barn. Indeed, we could go further and say that when we acquire an asset, our rights to that asset are almost infinitely divisible, with a separate right to every atom, or indeed sub-atomic particle, of which the asset is comprised.

However, our property rights are not so divisible and the approach in Dutton and Anns was, correctly, disapproved in D&F Estates Ltd v Church Commissioners.66 The issue was whether a careless builder was liable to a subsequent purchaser of a building for defects which began to appear in plasterwork after purchase for which he was responsible. The House of Lords held that he was not, characterising the loss as ‘purely economic.’67 The same approach has always been taken in relation to chattels.68 So, in The Rebecca Elaine69 the defendants were responsible for the manufacture of an engine which contained a piston which was prone to fail. The claimants’ vessel contained such an engine, which seized causing damage to itself. They argued that the defendants owed them a duty to warn them to carry out inspections of the engine. The claim was rejected, and the claimant’s loss characterised as purely economic.

If we see rights to specific things as indivisible, the house the claimant purchased in D&F Estates or the boat the claimant owned in The Rebecca Elaine were merely single items of property which were defective from the moment of acquisition. The manifestation of the defects did not infringe any other (property) rights of the claimant.

Dutton and Anns were not overturned by D&F Estates as the cases could be, unsatisfactorily, distinguished on the basis that the defendants involved, a local authority rather than a builder, were different. However the logic of Dutton and Anns was shown in

66 [1989] 1 AC 177, HL. 67 [1989] AC 177, HL, 206 per Lord Bridge, 213 per Lord Oliver. 68 Eg Muirhead v Industrial Tank Ltd [1986] QB 507, CA. 69 Hamble Fisheries Ltd v L Gardner & Sons Ltd, The Rebecca Elaine [1999] 2 Lloyd’s Rep 1, CA; cf Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002] EWCA Civ 549, [2002] 2 Lloyd’s Rep 379. D&F Estates to be defective from the start. The House of Lords finally overturned them in Murphy v Brentwood District Council.

However, what is considered to be separate property will always remain problematic in the marginal case. If the claimant buys two motorcars both manufactured by the same manufacturer, one of which has been carelessly constructed, if they are stored together and the defective one explodes destroying them both, the claimant should be entitled to no damages from the manufacturer in relation to the defective car but substantial damages for the loss of the other one.70 The rights to each car are separate and the claimant has suffered an infringement of his right to the car which was not defective.

Where a defective component is ‘added’ to the claimant’s asset, it would suffices that the claimant’s right to his original property is infringed. If in The Rebecca Elaine the defendants had manufactured a defective piston which the claimants had inserted into the engine of their boat, if the defective piston had destroyed the engine, the claimant’s original right to his engine is ‘other’ than the right to the piston. The claimant’s right to his engine before the installation have been infringed. The claimant’s property has been incorporated into a new thing which is now defective. At that point the damage is latent. If, by contrast, the claimant had purchased the engine with the defective piston already fitted by the previous owner, he would have no claim.71 The claimant would from the moment of acquisition only have one right to a single asset, the engine, which is never free from the defect. Such loss is purely economic, just as with the defective house in Murphy.

In Nitrigin Eireann Teoranta v Inco Alloys Ltd72 the claimants owned a chemical production plant. The defendants supplied tubing which was incorporated into the plant. The tubing was defective, first developing cracks and then exploding damaging the rest of the plant. On any view, May J. was correct to characterise the damage to the rest of the plant as property damage. The issue raised in Nitrigin was one of limitation, for which

70 A Tettenborn “Components and product liability: damage to ‘other property’” [2000] LMCLQ 338. 71 Contra Clerk & Lindsell on Torts (19th ed., 2006), 708. 72 [1992] 1 WLR 498 (May J.). purposes it was essential to know at what point the property damage occurred. It was held that the damage occurred at the time of the explosion.

However, if the tubing was incorporated into the plant and became integral to it, in the same way as foundations are an integral part of a house, or a piston an integral part of an engine, the relevant time for the assessment of damage to the plant was the moment of incorporation, and not as held the time of the explosion. The explosion, whilst far more dramatic, was equivalent to the cracks which appeared in the house in D&F Estates. If the house in D&F Estates had fallen down, or even exploded, this would have been ‘pure’ economic loss. No right to any separate thing was infringed at that point. In a case such as Nitrigin the cause of action based upon the right to the plant accrued as soon as the tubing was incorporated, although the limitation period may be extended where the defect is unknown.73 Where the defect is known from the start, no new cause of action should accrue at the time of explosion.

The difficulty is in ascertaining what counts as ‘other’ property. If I buy a barrel of apples, and one of them spoils the whole barrel, did I have one right (to the barrel of apples) and consequently suffered only economic loss or many rights (to each apple) and consequently suffered property damage?

Some divisibility between the things we own is necessary. We do not have one right to all of our property. The simplest division would be to say that where property is of a single physical whole it is one item of property. If I buy a car I own a car, not four wheels, a roof rack and a miscellaneous collection of bolts. If I buy two cars, I have the right to two separate things.

An alternative is to draw upon the law of accession.74 If one component would accede to a greater whole, it is not ‘other’ property but if it would not so accede it is. Perhaps unfortunately, the rules of accession are different in relation to land and chattels. If a chattel is attached to land it becomes part of the land, even if it is still identifiable and can

73 Limitation Act 1980, s 11A(5). 74 A. Grubb(ed) , The Law of Tort (2002), 803. be removed without damage.75 By contrast, when one chattel is attached to another one, it will not accede if the component is still identifiable and capable of separation without damage.76

In Aswan Engineering v Lupdine Ltd77 Lloyd L.J., with whom Fox L.J., agreed, took a ‘provisional view’78 that implicitly adopted the accession approach. The defendants manufactured plastic pails. The pails were filled with a waterproofing compound which was then sold to the claimant. This product was then shipped to the claimant in Kuwait where they were stacked in the blazing sun on arrival. There the pails failed and the compound was lost. The Court of Appeal decided that the defendants were not careless in relation to the lost compound. Lloyd LJ would have been prepared to classify the damage as property damage rather than economic loss, the right to the compound being a separate right to that to the pails. He also stated that a tyre is property separate from the car to which it is attached,79 as is a cork in a bottle of wine.80 Paint which caused a car’s metalwork to corrode, or defective water pipes in a house would not, on this approach, be ‘other property’ as these would ‘accede’ to the greater whole.

However, Aswan Engineering was decided at a time when Anns was still unquestionably good law, and Lloyd L.J.’s approach was doubted by Mance J. in The Orjula.81 The question of whether one item of property is separate from another should be resolved by applying the law of accession, but this approach has not as yet been unequivocally adopted by the courts.

More difficult, because counter-intuitive, are those cases where a single item of property is divided. Another example: C buys a car which has been carelessly manufactured by D and has as a result a defective fuel pump. C takes the car to be serviced. After the car has been

75 Hobson v Gorringe [1897] 1 Ch 182, CA. 76 Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 WLR 485. 77 [1987] 1 WLR 1, CA. 78 [1987] 1 WLR 1, CA, 21. 79 See also D&F Estates Ltd v Church Commissioners [1989] AC 177, HL, 211 per Lord Oliver. 80 [1987] 1 WLR 1, CA, 21. 81 Losinjska Plovidba v Transco Overseas Ltd [1995] 2 Lloyd’s Rep 395, 401. dismantled into separate pieces, the fuel pump explodes damaging the separate components. C’s property rights to the various component parts have been violated as he acquired separate rights as the car is dismantled. Unless we see our property rights as infinitely divisible or as a single right to the assets which make up our estate, such difficult cases on the margin are inevitable.

Lord Bridge in Murphy v Brentwood82 suggested that if a defective boiler or electrical wiring was installed in a house, the house purchaser could claim against the boiler manufacturer or electrical contractor if the house burnt down as a result. Whichever approach to divisibility is preferred, this is difficult to explain consistently with the outcome of the case. It can only be justified if the boiler or electrical wiring is installed after the claimant has acquired the house. If the work is done before acquisition, the claimant never acquired a right to the house separate to the right to the boiler and wiring. Instead he acquired one indivisible right to his house, of which the boiler and the wiring formed an integral part just as much as the foundations and plasterwork. Lord Bridge rejected his own earlier suggestion in D & F Estates that in a ‘complex structure’, such as a house, one part of the building (eg the foundations) might be ‘other property’ from another part (eg the walls). Unless the ‘complex structure’ theory is to be reintroduced, his obiter statements in relation to boilers and wiring must be read as only applying to additions to the building after acquisition.

6. Expenditure to Avoid Injury In another obiter dictum in Murphy Lord Bridge also suggested: 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 demolition, so far as that cost is

82 [1991] 1 AC 398, HL, 478 cf 470 per Lord Keith. necessarily incurred in order to protect himself from potential liability to third parties.83

This statement is difficult to reconcile with either the reasoning in Murphy itself or with the thesis of this work. Such expenditure would be ‘pure’ economic loss as before any collapse there is no right of anyone which has been infringed. Even if the building was to collapse, injuring someone else or damaging another’s property, this would not constitute an infringement of any right of the building owner. No claim based upon a tort should be possible by him.

However, if no claim is permissible the building owner is placed in an invidious position. Once he becomes aware of the defects, if he carelessly fails to take steps to repair he will be liable if the building collapses on someone else’s person or property. If the owner had not been aware of the defects the careless builder would be liable to the third party for any injury caused by the collapse. Once the defects are discovered, the primary responsibility to correct the danger rests upon the builder who has created it. By incurring expenditure to repair the building and prevent collapse, the owner at his expense prevents the builder from incurring any liability to a third party.

Although the result that the builder is liable to reimburse the expenditure is difficult to explain within the law of torts, the result is explicable as a claim in unjustified enrichment. The owner’s expenditure has prevented the builder’s liability to a third party from arising. By anticipating the builder’s liability, the owner’s expenditure has caused the builder to be enriched. The minimum quantum of this enrichment is the expenditure the builder would have incurred in making the building safe and thereby preventing his own potentially much greater liability for injuries caused by the dangerous building. This enrichment is at the expense of the owner who actually carries out the repairs. This enrichment is unjustified. The owner has been compelled to incur expenditure to avoid a liability for an injury which, if it had occurred, the builder would have been primarily responsible.

83 [1991] 1 AC 398, HL, 475. See also D & F Estates v Church Commissioners for England [1989] AC 177, HL, 216 per Lord Oliver. If correct, this analysis provides a possible alternative basis of recovery where the owner incurs expenditure to avoid injury to himself or others in occupation, as in Anns itself. If the house collapses before the defect is discovered injuring those in occupation, the builder will be liable for these injuries. An owner who sat back and did nothing upon discovering the defects, would be potentially liable to anyone in occupation who is injured. Again, the expenditure the owner is compelled to incur anticipates the builder’s potential liability. Again, therefore, a claim in unjust enrichment may be arguable.

However, in such circumstances it can be said that such expenditure to avoid injury is unnecessary. The owner can move out of the house, require others in occupation to do the same and sell the building. The costs of such removal should be recoverable but they are unlikely to be as extensive as the costs of repair. Any costs incurred over and above those strictly necessary to avoid injury to those in occupation can only therefore be attributed to the defective quality of the building. Any such further expenditure cannot therefore be said to confer an unjust enrichment on the builder.

It can be argued that it is unreasonable to expect residential homeowners to ‘discard’ a dangerous family home by moving out. If this is accepted, as it has been in Canada84 but not in England,85 repairs to defects threatening personal injuries to occupants should be recoverable in cases of residential property.86 On this interpretation of what can be reasonably expected of residential home owners, it may be correct to give a claim against a careless builder for the costs of repairs if the claim is re-characterised as based upon unjust enrichment. In Anns itself, recovery was not allowed for the full difference in value between the property with and without the defect, nor was the full cost of repairing the property to put it into the condition it would have been in if carefully built recovered. Rather, damages were confined to “the amount of expenditure necessary to restore the

84 Winnipeg Condominium Corporation v Bird Construction Co [1995] 1 SCR 85 (Sup Ct of Canada), 119 per La Forest J. See also Rivtow Marine v Washington Ironworks [1974] SCR 1189; Bryan v Maloney (1995) 182 CLR 609, (High Ct of Australia), 651 per Brennan J. dissenting. 85 D & F Estates v Church Commissioners for England [1989] AC 177, HL. 86 M Moran, “Rethinking Winnipeg Condominium Restitution, Economic Loss and Anticipatory Repairs” (1997) 47 U Tor LJ 115. dwelling to a condition in which it is no longer a danger to the health and safety of persons occupying and possibly (depending on the circumstances) expenses arising from necessary displacement.”87 Such limited recovery can be explained if the claim is re- characterised as one based upon unjustified enrichment. It was only this expenditure that the claimants were compelled by necessity to incur, and it was this expenditure that the defendant builder would otherwise have had to incur in order to avoid the potentially much larger liability for personal injuries from accruing. Such limited recovery is difficult to explain if the claim is seen as based upon a tort, as the economic loss suffered as a result of the defendant’s carelessness was greater than that expended to make the building safe.

By contrast with threats to those in occupation, the owner of the building cannot require his neighbours to move out, nor can he prevent others from using the highway. Therefore any expenditure incurred in order to prevent injury to neighbouring landowners or users of the highway should always be recoverable, even in cases of non-residential house purchases. There is no cheaper option. All such necessary expenditure unjustifiably enriches the careless builder. The distinction Lord Bridge intuitively grasped is correct, although the envisaged basis of the claim is not.

7. Consequential Loss and Undertakings Where the claim is for breach of contract, the economic loss consequent upon the infringement of the right to performance is recoverable. Indeed, as this is the usual form the loss takes in the context of breach of contract, it would be unusual to think in terms of economic loss.

As has been seen, contractual duties are not the only form of voluntarily created primary obligation. As seen, the primary right generated by an ‘assumption of responsibility’ covers a number of situations. The central case is that described by Lord Devlin in Hedley Byrne & Co v Heller & Partners88 as being “where but for the absence of

87 Anns v Merton London Borough Council [1978] AC 728, HL, 759 per Lord Wilberforce 88 [1964] AC 465, HL; cf Glanzer v Shephard 135 NE 275 (NY 1922). consideration there would be a contract.”89 A contract minus consideration is a gratuitous promise. That a promise unsupported by consideration has legal effects does not in itself offend the requirement of consideration in contract. As Professor Treitel has said, “’Contract’ does not exhaust the category of promises or agreements having some legal effects.”90 A gratuitous bailment is an ancient example of a voluntarily assumed obligation,91 as old as contract itself, which falls outside of contract’s scope. The rights generated by a gratuitous promise are of a different order from contractual undertakings. For example the remedies available, the defences applicable, whether the proof of consequential loss is necessary and when the duty will be construed as strict may be different. Contract in general and the doctrine of consideration in particular are not rendered otiose by the more limited rights created by gratuitous undertakings.

The most well known early example of the recovery of economic loss consequent upon the breach of a gratuitous undertaking, but not the only one,92 is Wilkinson v Coverdale.93 The defendant gratuitously undertook to get a fire policy renewal for the claimant but, in doing so, negligently omitted certain formalities, which rendered the policy unenforceable. It was held that if the promise to procure the insurance could be proven, the defendant would be liable for the economic loss caused by the destruction of the uninsured premises. It is sometimes said that this principle is limited to cases of misfeasance (carelessly renewing the policy) and does not cover nonfeasance (failing to renew at all),94 but such a distinction is impossible to justify95

89 [1964] AC 465, HL, 529. 90 Treitel, The Law of Contract (11th ed., 2003), 73 emphasis in original. See also M Bridge “The Overlap of Tort and Contract” (1982) 27 McGill LJ 872, 883. 91 Coggs v Bernard (1703) 2 Raym Ld 909, 92 ER 107, 108 per Powell J, 113 per Holt CJ. 92 See also Russell v Palmer (1767) 2 Wils KB 325, 95 ER 837; Smith v Lascelles (1788) 2 TR 187, 100 ER 101; Dartnall v Howard (1825) 4 B & C 345, 350-351, 107 ER 1088, 1089; Whitehead v Greetham (1825) 2 Bing 464, 130 ER 385; Cann v Wilson (1888) 39 Ch D 39. 93 (1793) 1 Esp 75, 170 ER 284; cf Fine’s Flowers Ltd v General Accident Assurance Co of Canada (1977) 81 DLR (3d) 139 (Ont CA); Norwest Refrigeration Services Pty. Ltd. v Bain Dawes (W.A.) Pty.Ltd 157 CLR 149 (High Ct of Australia). 94 Eg Skelton v London and North Western Railway Co (1867) 2 LRCP 631, 636 per Willes J.; Argy Trading Development Co Ltd v Lapid Developments [1977] 1 WLR 444. 95 Midland Bank Trust Co Ltd v Hett Stubbs & Kemp [1970] Ch 384, 416 per Oliver J. relying on Barnett v Chelsea and Kensington Hospital Management Committee [1969] 1 QB 428; Bromley LC v Ellis [1971] 1 Lloyd’s Rep 97, CA. ‘Assumption of responsibility’ is the best explanation for the category of cases exemplified by Hedley Byrne & Co v Heller & Partners ,96 indeed it provides the only doctrinally satisfactory way of explaining the result in the case itself. The claimants were advertising agents who had placed advertisements on behalf of a client on terms that they were personally obliged to meet. Having become concerned about the financial viability of their client, they made enquiries of the defendant bank as to the financial position of the client who banked with them. The bank replied that the client was ‘considered good for its normal business engagements.’ The statement was made ‘without responsibility.’ In reliance on this reassurance the claimants placed orders which their client defaulted on, resulting in losses of £17,000. The House of Lords accepted that, absent the fact that the statement was made ‘without responsibility’ the bank would have been liable. Without an assumption of responsibility, there was no right the claimants could found their claim upon97 and the claim failed.

If it was thought that economic loss consequent upon a negligent misrepresentation is actionable without more, the method by which the ‘disclaimer’ excludes liability is a mystery. Normally a non-contractual disclaimer will not enable a defendant to escape liability. If a driver places a large neon sign on the roof of his car stating that he accepts no responsibility towards those he carelessly crashes into, this will not avail him against his victims even if they have read his notice.

On a rights based model the result in Hedley Byrne is readily explicable. Where the right relied upon arises independently of an assumption of responsibility a disclaimer will be of no effect. For example, our right not to be lied to is independent of any assumption of responsibility and the disclaimer would not have availed a dishonest bank. The disclaimer made it clear that no responsibility was assumed. Against an honest bank, without an assumption of responsibility because the claim was doomed to fail, as this was the only source of a right.

96 [1964] AC 465, HL; cf Banbury v Bank of Montreal [1918] AC 626, HL, 657 per Lord Finlay LC. 97 [1964] AC 465, HL, 492 per Lord Reid, 504 per Lord Morris, 511-12 per Lord Hodson, 533 per Lord Devlin, 540 per Lord Pearce. At one time some commentators thought that Hedley Byrne created a special rule in relation to careless words.98 However, the justifications which have been given for treating words differently from acts, that words are frequently uttered informally and have the potential to be passed on to a large number of people who may rely upon them,99 indicate that the law should be more, not less, reluctant to impose liability for negligent words. The authorities relied upon by the House of Lords in Hedley Byrne, for example Wilkinson v Coverdale, do not all involve misstatements. It would be possible to imagine a right against others that they take care to speak the truth, by extrapolation from the right we have that others do not intentionally or recklessly deceive. However, there is no indication in any of the speeches in Hedley Byrne that the House of Lords thought they were introducing a special rule in relation to words, or that they were expanding our right to be told the truth. The confusion has arisen because one of the other issues in Hedley Byrne was whether there could be liability for careless words. The old rule that there could not,100 was correctly overruled. It was intended that words and actions should be equated, not that recovery for careless words should leapfrog careless actions and provide for more generous recovery.

Similarly it is also sometimes said that the Hedley Byrne principle concerns the negligent provision of services,101 but no explanation has ever been proffered as to why there should be a special rule in relation to services. The speeches correctly do not claim that any new right was being introduced. None of these characterisations of Hedley Byrne explain the result in the case itself. Hedley Byrne did not introduce a revolutionary new form of liability into English law, as is sometimes claimed. The correct interpretation is also the one which is patent from reading the speeches, that it is possible to claim for economic loss consequent upon the failure to comply with a gratuitous assumption of responsibility.

On the assumption that negligently inflicted loss is prima facie actionable, the concept of an “assumption of responsibility” makes little sense. If the starting point is that all loss 98 Eg P Atiyah, “Negligence and Economic Loss” (1967) 83 LQR 248. 99 [1964] AC 465, HL, 482-483 per Lord Reid. 100 See Candler v Crane, Christmas & Co [1951] 2 KB 164. 101 Eg S Deakin, A Johnston, B Markesinis, Markesinis and Deakin’s Tort Law (5th ed., 2003), 124-131. caused through fault is prima facie recoverable unless there is a reason for conferring an immunity on a defendant, an ‘assumption of responsibility’ appears otiose. Assumption of responsibility does not fit within the ‘three stage’ test for a duty of care. Many judges content themselves with the incantation of both the three-stage test and the requirement of a voluntary assumption of responsibility102 although the conceptions of the law of torts they embody, one loss based and one rights based, are not the same.103 Further, assumption of responsibility does not fit with the commonly held view that the law of tort is concerned with rights which arise by operation of law whilst the law of contract is concerned with voluntarily created rights. As Lord Goff stated, ironically in the same speech in which he re-discovered the principle of voluntary assumption of responsibility: Tort law is the general law out of which the parties may contract.104 It is unsurprising that some judges have dismissed assumption of responsibility as no more than conclusory.105 Indeed, in some cases the concept has been employed where it is of no explanatory force. For example, in White v Jones106 Lord Goff argued that there should be deemed ‘in law’107 to be a voluntary assumption of responsibility by the defendant to the claimant. A fictional assumption of responsibility is of no practical utility. However, the fact that assumption of responsibility is not a universal solvent capable of explaining all cases should not cause us to conclude that it has no explanatory force in any case.108 That economic loss consequent upon the careless breach of a voluntarily assumed duty is recoverable, should not lead us to conclude that economic loss is only recoverable in such circumstances.

That “assumption of responsibility” is indispensable if the law is to be understood is further illustrated by the important decision of the House of Lords in Williams v Natural

102 Eg Dean v Allin & Watts [2001] EWCA Civ 758, [33], [2001] 2 Lloyd’s Rep 249 per Lightman J. 103 See K Barker, “Wielding Occam’s Razor: Pruning Strategies for Economic Loss” (2006) 2 O JLS 289, defending the loss based model. 104 Henderson v Merrett Syndicate [1995] 2 AC 145, HL, 193. 105 Eg Smith v Eric S Bush [1991] 1 AC 831, HL, 862 per Lord Griffiths; Caparo Industries plc v Dickman [1990] 2 AC 605, HL, 629 per Lord Roskill; Phelps v Hillingdon London Borough Council [2001] 2 AC 619, HL, 654 per Lord Slynn. 106 [1995] 2 AC 207, HL. 107 [1995] 2 AC 207, HL, 268. 108 R Stevens “Why do Agents Drop Out?” [2005] LMCLQ 101; cf K Barker “Unreliable Assumptions in the Modern Law of Negligence” (1993) 109 LQR 461. Life Health Foods.109 The defendant was the managing director and principal shareholder of a small company which marketed health food shop franchises. Encouraged by statements in the company’s brochure and prospectus, the claimants entered into a franchise agreement with the company. They suffered heavy losses. The company was wound up and the claimants sought to hold the defendant personally liable for the negligent misstatements in the brochure and prospectus. Both the brochure and the prospectus were prepared by the defendant. The enquiry was whether objectively interpreted “the director, or anybody on his behalf, conveyed directly or indirectly to the prospective franchisees that the director assumed personal responsibility towards the prospective franchisees.”110 As he had not, the director was not liable. The “issue … is not peculiar to companies”111 and a similar approach has been adopted in relation to solicitors making statements on behalf of their clients.112 It is possible for the agent to give a personal (non-contractual) undertaking to the third party so that he will be jointly liable with his principal for negligent misstatements.113 Although determining whether there has been an assumption of responsibility has been criticised as artificial,114 there is no more artificiality in discerning either a contractual or a non-contractual undertaking.

An agent who has not assumed responsibility towards a claimant may still be liable for the commission of a tort where the claimant is able to rely upon another right against him. In Standard Chartered Bank v Pakistan National Shipping Corporation115 the defendant was again the director of a company. The bank claimed that he was liable in deceit for issuing a falsified bill of lading against which they had paid. The Court of Appeal, basing their judgment on Williams, held that he could not be liable as the

109 [1998] 1 W.L.R. 830, HL. See also Fariline Shipping Corporation v Adamson [1975] QB 180; Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 (CA (NZ)). 110 [1998] 1 WLR 830, HL, 835 (Lord Steyn). 111 [1998] 1 WLR 830, HL, 835. 112 Gran Gelato v Richcliffe (Group) Ltd [1992] Ch 560; cf McCullagh v Lane Fox & Partners Ltd [1996] 1 EGLR 35, CA, 43-44 per Hobhouse LJ. 113 Fairline Shipping Corp. v Adamson [1975] QB 180; Al Kandari v J R Brown & Co [1988] QB 665, CA; Merrett v Babb [2001] EWCA Civ 214, [2001] QB 1174; Bradford & Bingley plc v Hayes (QBD, 25 July 2001). 114 J Stapleton, “Duty of Care Factors: a Selection from Judicial Menus” in Essays in Celebration of John Fleming (Cane and Stapleton edd., 1998) 59, 64-65. 115 [2002] UKHL 43, [2003] 1 A.C. 959. statements made were only attributable to the company on whose behalf he acted.116 This reasoning was robustly rejected by the House of Lords. The claim was for loss consequential upon the right not to be lied to, a right good against everyone else. As Lord Hoffmann states: No one can escape liability for his fraud by saying ‘I wish to make it clear that I am committing this fraud on behalf of someone else and I am not to be personally liable.’117

9. Consequential Loss and Other Rights The decision of the Court of Appeal in Commissioners of Customs and Excise v Barclays Bank plc118 is an example of a sceptical approach to the utility of a voluntary assumption of responsibility. The claimant had obtained a freezing injunction against two companies both of which held current accounts with the defendant bank. Notice of the orders was given to the bank. The companies debited substantial sums from their accounts, which the Bank failed to stop. The claimants successfully argued that the defendant owed them a duty of care which, in carelessly allowing the accounts to be debited, they had breached causing the claimant substantial economic loss.

Although Peter Gibson L.J. was prepared to deem there to have been an assumption of responsibility when the bank received notice of the freezing orders119 this is fictional and denudes the concept of all utility. Again, although an assumption of responsibility is sufficient to generate a right in order to recover economic loss, it should not be treated as the only possible source of such a right.

If the Bank had deliberately flouted the freezing order it would have been guilty of contempt.120 Court orders themselves generate rights. Contempt proceedings may be invoked by the person in whose favour the court has made the order.121 The issue before

116 [2000] 1 Lloyd’s Rep. 218. 117 [2002] UKHL 173, [2003] 1 A.C. 959, [22]. 118 [2004] EWCA Civ 1555, [2005] 1 WLR 2082. 119 [2004] EWCA CIv 1555, [2005] 1 WLR 2082, [65] 120 Z Ltd v A-Z and AA-LL [1982] QB 558, CA. 121 Z Bank v D1 [1994] 1 Lloyd’s Rep 656, 660 per Colman J. the court was therefore whether the right which the claimants acquired against the defendant by virtue of the court order was a right that the defendants not deliberately allow the companies to debit their bank accounts; or was it a right that the defendants take care not to allow the companies access to debit the accounts. If the latter, then the defendants would have violated the claimants’ rights in carelessly allowing the companies access to their bank accounts and would therefore have been liable in tort to compensate the defendants. It is possible that such a right could be recognised, but this would have to be found in the terms of the order itself. As the court order purported to generate no such right, no claim could succeed and the House of Lords overturned the decision of the Court of Appeal to the contrary.122 Although there was no specific policy objection to liability being imposed,123 no right was infringed and consequently no liability.

Where the economic loss is consequent upon the breach of a statutory duty which, on its true construction, confers a private right of action for its breach upon the claimant, it is recoverable.124 This is now the best explanation for the result in Ministry of Housing v Sharp.125 The claimants registered a planning charge with the local land registry. A purchaser of the land charged requisitioned a search. The clerk in the registry carelessly failed to notice the charge and issued a clear certificate to the purchasers, who completed the purchase. Under the Land Charges Act 1925 the certificate was conclusive and he claimants were consequently unable to enforce their charge against purchasers. The claimants sued the local registrar and the council on the ground that they were responsible for the mistake made by the clerk they employed.

Lord Denning MR was prepared to conclude that the statutory regime under which the registrar acted imposed an absolute obligation on the registrar to give an accurate certificate of search. Salmon and Cross LJJ were unwilling to agree that this was the

122 [2006] UKHL 28, [2006] 3 WLR 1. 123 K Barker, “Wielding Occam’s Razor: Pruning Strategies for Economic Loss” (2006) 2 OJLS 289, 293- 295. 124 Rickless v United Artists Corporation [1988] QB 40, CA; Pickering v Liverpool Daily Post [1991] 2 AC 370, HL, 420 per Lord Bridge. 125 [1970] 2 QB 223, CA. correct construction. Lord Denning MR was also prepared to hold that if he was wrong and the duty imposed was not absolute, it was a duty that care would be taken of the claimant. The registrar’s liability would be primary, not vicarious, and it would be, and was, irrelevant that the clerk who was careless was not his employee. This analysis appears correct. Neither Salmon nor Cross LJJ dissented from this approach; indeed Salmon LJ indicated that it was correct. However they were not prepared to impose liability on this basis because this was not the way in which the case had been presented. Salmon and Cross LJJ preferred to give judgement on the basis that the registrar and council’s liability was vicarious for the clerk’s liability for the economic loss caused by his carelessness. The clerk’s liability was said to be explained by the principle in Hedley Byrne. If correct this would mean that the careless clerk would himself be personally liable, a position Lord Denning MR and Salmon LJ were prepared to accept but which Cross LJ thought doubtful.126

Following Williams v Natural Life Health Foods the basis of the decision of the majority in Ministry of Housing v Sharp cannot be correct. The clerk as an individual was not under any statutory duty. He did not voluntarily assume responsibility towards any individual seeking to register a charge, as was accepted by the Court of Appeal. Further, seeing the liability of the defendants as vicarious upon the carelessness of the clerk in Sharp does not explain how both the registrar and the council could be liable. The clerk was, presumably, the employee of the council and not the registrar and only a claim against the employer should have been possible if liability was vicarious unless there was a ‘transfer’ of employment sufficient to make them both vicariously liable.127

It has been suggested that the clerk in carelessly issuing the certificate caused the claimants to lose their property right, their interest in the land by way of charge, and that the economic loss consequent upon the infringement of this right should have been recoverable on this basis.128 Even if it is accepted that the chargeholder had a property right which gave rise to rights good against everyone else, as a legal mortgagee no doubt 126 See T Weir “Governmental Liability” [1989] PL 40. 127 Viasystems (Tyneside) Ltd v Thermal Transfer (Northern) Ltd [2005] EWCA Civ 1151, [2006] 2 WLR 428. 128 N McBride & R Bagshaw, Tort Law (2005), 116. does, the chargeholder’s right to be registered and to have accurate search certificates produced is not a right good against the rest of the world. It is only exigible against the registrar. It is not a property right properly so called. If, on its true construction, the Land Charges Act created no duty upon the registrar which was actionable by the chargeholder, the claim should have failed.

10. Joint Ventures It is sometimes claimed that the decision in Morrison Steamship Co Ltd v Greystoke Castle (Cargo Owners)129 is an example of recovery for ‘pure’ economic loss.130 Properly understood, it is not. The defendants negligently caused the collision of their ship into another, The Greystoke Castle, carrying the claimants’ goods. The claimants, as cargo- owners, were obliged by way of general average to re-imburse the owners of The Greystoke Castle for the expenses consequently incurred in unloading and loading the damaged ship. The defendants were also liable to the shipowners, as tortfeasors, to pay for the same expense consequent upon the damage to The Greystoke Castle. The claimants had been legally compelled to make good a loss for which the defendants were primarily liable.131 The claim brought is best explained as based upon unjustified enrichment, not tort. The same principle applies whenever a party who is secondarily liable has been compelled to discharge a liability for which another party is primarily liable (eg a guarantor’s claim against a principal debtor). The party primarily liable is unjustifiably enriched at the expense of the party secondarily liable. A majority of the House of Lords held that the tortfeasor was obliged to reimburse the expense the cargo owner incurred. Only where the claimant is legally compelled to incur this expenditure should it be recoverable.132

129 [1947] AC 265, HL. 130 Eg Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27, CA, 37 per Lord Denning MR; Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520, HL, 540 per Lord Roskill; Canadian National Railway Co. v Norsk Pacific Steamship Co [1992] 1 SCR 1021 (Sup Ct of Canada), 1162 per McLachlin J.; J. Stapleton, “Duty of Care and Economic Loss: A Wider Agenda” 107 (1991) L.Q.R. 249, 265. 131 See Exall v Partridge (1799) 8 TR 308, 101 ER 1405; G Jones, Goff & Jones The Law of Restitution (6th ed, 2002), 423-441. 132 See the example of Lord Roche [1947] AC 265, HL, 280. In Canada, under the influence of the law of Quebec which is based upon French civil law,133 the Canadian Supreme Court in Canadian National Railway Co. v Norsk Pacific Steamship Co134 allowed a claim for the economic loss suffered by a claimant who merely had a contractual entitlement to the use of a bridge which was damaged by the defendant, a tug-owner. Without any right to the bridge which was good against the defendant, recovery should not have been allowed on the thesis of this work. The court applied the ‘two stage’ test from Anns which has been rejected in England. The economic loss consequent upon the infringement of someone else’s property right was thought to be recoverable in cases of “joint ventures” with the owner of the property damaged. In such cases the person suffering the loss is thought to be “in the same position as if he or she owned the property physically damaged.”135 This principle was thought to be found in The Greystoke Castle.136 The principle applied in The Greystoke Castle would not apply to the facts of Norsk as the claimants were neither obliged to the owners of the bridge to pay for its repair nor did they in fact do so. Norsk would not be followed in England137 and has been confined in Canada.138

11. Vulnerability In Australia, the courts have been bolder still. In Bryan v Maloney 139 the High Court of Australia following the Supreme Court of Canada,140 refused to follow D&F Estates and imposed liability on a negligent builder for the full costs of remedying the defects in a house incurred by a subsequent residential purchaser. This despite the High Court’s

133 [1992] 1 SCR 1021 (Sup Ct of Canada), 1174-1175 per Stevenson J. 134 [1992] 1 SCR 1021 (Sup Ct of Canada). 135 Canadian National Railway Co v Norsk Pacific Steamship Co. [1992] 1 SCR 1021 (Sup Ct of Canada), 1162 per McLachlin J. See further Bow Valley Huskey (Bermuda) Ltd v Saint John Shipbuilding Ltd [1997] 3 SCR 1210 (Sup Ct of Canada). 136 Amoco Transport Co v S/S Mason Lykes 768 F. 2d 659 (5h Cir 1985) was also relied upon. On similar facts to The Greystoke Castle, the court allowed a claim by cargo-owners against careless shipowners based upon “equitable subrogation” (668). Subrogation claims are properly seen as based upon unjust enrichment, not the law of torts. 137 Cf Anglo-Algerian Steamship Co Ltd v The Houlder Line Ltd [1908] 1 KB 659; La Societe Anonyme se Remorquage a Helice v Bennets [1911] 1 KB 243; Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986] 1 AC 785, HL. 138 Bow Valley Huskey (Bermuda) Ltd v Saint John Shipbuilding Ltd [1997] 3 SCR 1210 (Sup Ct of Canada). 139 (1995) 182 CLR 609 (High Ct of Australia). 140 Winnipeg Condominium Corp v Bird Construction Co Ltd [1995] 1 SCR 85 (Sup ct of Canada). earlier decision of Sutherland Shire Council v Heyman141 which had refused to follow Anns v Merton in imposing liability on a local authority to a subsequent residential house purchaser for the careless inspection of building work.

More surprising than Bryan v Maloney is the result in Perre v Apand Proprietary Ltd.142 The defendant negligently supplied infected seed potatoes to a farmer who grew a diseased crop. The claimants’ crop was unaffected but regulation prevented growers within a twenty mile radius of the affected crop from selling their potatoes in Western Australia. A majority of the High Court of Australia143 allowed claims for economic loss suffered by the growers. Again, this decision would not be followed in England.144

It is difficult to know what the boundaries of these decisions are. In Woolcock Street Investments Pty Ltd v CDG Pty Ltd145 the High Court of Australia held that a subsequent purchaser of a commercial building was owed no duty of care by the engineer who was responsible for the foundations of the building allegedly defectively designed. Bryan v Maloney and Perre v Arpand were seen as exceptional cases where the claimant was vulnerable. Vulnerable was not taken to mean likely to suffer damage if reasonable care was not taken. Rather, vulnerability referred to the claimant’s’ “inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant.”146 The failure of the claimant to show that it could not have stipulated in the contract under which they purchased the property either for a warranty that the property was free from defect, or for an assignment of the rights against the builder was fatal to its claim.147 The consumer in Bryan v Maloney or the farmer in Perre v Arpand had no such opportunity to protect themselves.

141 (1985) 157 CLR 424 (High Ct of Australia). 142 (1999) 198 CLR 180 (High Ct of Australia). 143 Gleeson CJ, Guadron, McHugh, Gummow, Kirby and CallinanJJ.; McHugh J. dissenting. 144 Weller v Foot & Mouth Disease Research Institute [1966] 1 QB 569. 145 [2004] 216 CLR 515 (High Ct of Australia). 146 [2004] 216 CLR 515 (High Ct of Australia), [23]. The idea is taken from J Stapleton, "Comparative Economic Loss: Lessons from Case-Law-Focused 'Middle Theory'", (2002) 50 UCLA Law Review 531. 558-559; J Stapleton, "The golden thread at the heart of tort law: Protection of the vulnerable", (2003) 24 Australian Bar Review 135, 142. 147 [2004] 216 CLR 515 (High Ct of Australia), [31]. ‘Vulnerability’ is an unsatisfactory way of confining the cases. Presumably Bradford v Pickles is no longer good law in Australia. Bradford had no means to protect themselves from Pickles’ intentional infliction of loss. Further, it is difficult to maintain that such a paternalistic principle truly underlies the common law of torts in the face of the rule that there is no liability for failure to confer a benefit, and in particular no positive duty to protect others from harm. Similarly, if X carelessly injures Y, is X liable to Y’s children for their economic loss in Australia? The children have no means of bargaining for protection either with X or Y. If Y carelessly injures himself, do his children have a claim against him for their economic loss? If Y is driving a car and has liability insurance which covers his careless driving, his children would have a reason to seek to establish liability. If there is no liability, why not? Further, why should the principle of ‘vulnerability’ only apply to economic loss? If a commercial party suffers property damage but had the opportunity to bargain for protection from this loss either with the defendant or with a third party, why should he be able to claim in the law of torts? He is not ‘vulnerable’ as he can protect himself through contract. If all loss caused by fault is prima facie actionable there does not appear to be any reason in principle for confining the ‘vulnerability’ limitation on recovery to economic loss. Finally, the control device of ‘vulnerability’ is difficult to reconcile with the freedom accorded claimants to base their claim upon breach of contract or a tort as they see fit.148 Where there is a contract, the parties clearly had the opportunity to bargain, and why should any other claim persist?

12. Conclusion For a brief period in the 1970s and 80s it was possible to argue that English law was moving towards a loss based model, where economic loss inflicted through fault was actionable without more. The decisions of the Court of Appeal in Dutton v Bognor Regis United Building Co149 and the House of Lords in Anns v Merton London Borough Council150 in allowing claims by purchasers of buildings against the careless builder or the authority responsible for the work’s careless inspection, opened up the possibility of

148 Henderson v Merrett Syndicate [1995] 2 AC 145, HL, 193. 149 [1972] 1 QB 373. 150 [1978] AC 728, HL. the wholesale re-writing of the common law. However, the decisions themselves were not so radical and proceeded on the assumption that the claimant’s right to his property were divisible in a way which had not been previously supposed. The foundations of these decisions were undermined by D&F Estates v Church Commissioners151 and they were correctly overruled in Murphy v Brentwood. At least in England, the rights based model is again dominant.

When we say that a loss is ‘purely’ economic we mean that it was not consequential upon the infringement of a right. ‘Pure’ economic loss is in principle no more recoverable today than at the time of Allen v Flood or Bradford v Pickles. Only where economic loss is suffered as a consequence of the infringement of a right is it actionable.

The undefined (indefinable?) ‘joint ventures’ exception in Canada and the open textured ‘vulnerability’ limitation in Australia will operate as a brake on the wholesale move over to a different model of law in those systems. However, this is at the expense of treating like cases alike. The Australian approach in particular has the potential to be used to completely re-fashion the law.

The different results of a rights based and loss based model may finally be illustrated by two decisions of the House of Lords: D&F Estates v Church Commissioners152 and Smith v Bush.153 In the first case, a lessee sought to recover the cost of replacing defective plaster work from a careless sub-contractor employed by its landlord. No liability was imposed. In the second case the claimants were house purchasers who had relied upon a carelessly prepared survey provided for the building society from whom they were taking out a mortgage. The survey made it clear that no responsibility was being undertaken towards anyone but the building society. Liability was imposed. In both, the claimant had been carelessly caused economic loss by the defendant. In both it is extremely difficult to construct any right that the claimants could assert was infringed. As Professor Stapleton has argued, it is difficult to explain why, as a matter of principle, builders should be

151 [1989] AC 177, HL. 152 [1989] AC 177, HL. 153 [1990] 1 AC 831, HL. treated differently from surveyors.154 In the later case, Smith v Bush, no reference was made in any of the speeches to the earlier decision of D&F Estates. It may be that the different result is based upon the mistaken view that liability for words is more extensive than for acts. If it is assumed that all loss caused by negligence should prima facie be recoverable, the result in D&F Estates appears incorrect. On a rights based approach it is Smith v Bush, “decided on special facts”155, which is anomalous. Following the return to the reasoning applied by the House of Lords in Hedley Byrne in, for example, Williams v Natural Life Health Foods, it is Smith v Bush which is out of step with English law as we now find it.

However, it is possible that the homeowner who is forced to incur expenditure making good defects in a property, thereby anticipating a liability that a builder would otherwise incur, has a claim for restitution based upon unjust enrichment. This possibility has yet to be explored before the English courts.

© Robert Stevens The copyright of this paper is in the name of the author, Robert Stevens. This paper may not be reproduced, published or otherwise circulated without the permission of the author.

154 J. Stapleton, “Duty of Care and Economic Loss: A Wider Agenda” 107 (1991) L.Q.R. 249, 282-283. 155 Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, HL, 837 per Lord Steyn.

Load more

  39

Copy Link