Duty of Care for Pure Economic Loss in Negligence
The law of negligence is founded upon the principle that a person should take reasonable care to avoid causing foreseeable injury to others (a "duty of care"). "Injury" means personal injury and injury to property.
However, the cost of rectifying defective work is considered by the Courts to be pure economic loss which, in the absence of a special relationship giving rise to a duty of care, is not recoverable in negligence.
If cracks in a negligently installed (or designed) pipe lead to an explosion which causes damage to the surrounding building, then the financial consequences of the damage to the building are recoverable.
However, if the cracks in the pipe are discovered and fixed by the owner, he cannot recover that cost from the guilty party in negligence. Nor can he recover his losses occasioned by, for example, shutting down his factory while the cracks are being rectified. These two losses are known as "pure economic loss". They are generally not recoverable in negligence.
The reason for this is because a duty of care must be consistent with an assumption of responsibility. There is no presumed general duty to avoid causing economic loss to another: it must be shown that such a duty was actually and deliberately assumed.
This general rule was established in the Murphy v Brentwood District Council [1991] AC 398 case, where it was said;
“If a builder erects a structure containing a latent defect which renders it dangerous to persons or property, he will be liable in tort for injury to persons or damage to property resulting from that dangerous defect. But if the defect becomes apparent before any injury or damage has been caused, the loss sustained by the building owner is purely economic. If the defect can be repaired at economic cost, that is the measure of the loss. If the building cannot be repaired, it may have to be abandoned as unfit for occupation and therefore valueless. These economic losses are recoverable if they flow from breach of a relevant contractual duty, but, here again, in the absence of a special relationship of proximity they are not recoverable in tort”.
As we all know, rights and liabilities in construction cases are usually protected by a contractual chain, and the Courts consider that a duty of care to avoid causing pure economic loss in tort is inconsistent with the contractual structure.
In the case of Thomas & Anor v Taylor Wimpey Developments Ltd & Ors [2019] EWHC 1229 (TCC), the claimants, Mr & Mrs Thomas, purchased properties from Taylor Wimpey (“TW”) on 19 January 2007.
A claim made by the claimants against TW for TW’s alleged breach of duty of care at common law, arose from the allegation that log retaining walls at the rear of the back gardens of the purchased properties had been inadequately built by TW and were defective. The said Thomas & Anor case was a trial to determine preliminary issues concerning the liability of TW, and one of those preliminary issues was, did TW owe the claimants a duty of care in negligence for the loss and damage that the claimants alleged?
Consistent with the finding in the Murphy case referred to above, HHJ Keyser QC, held on that preliminary issue that TW did not owe the claimants a duty of care in negligence for the loss caused by the defective log retaining walls.
In fact, in the case, the claimants had acknowledged this general rule, but relied on Lord Bridge’s dictum in the above noted Murphy case that;
“The only qualification I would make to [the general rule] is that, if a building stands so close to the boundary of the building owner’s land that after discovery of the dangerous defect it remains a potential source of injury to persons or property on neighbouring land or on the highway, the building owner ought, in principle, to be entitled to recover in tort from the negligent builder the cost of obviating the danger, whether by repair or by demolition, so far as that cost is necessarily incurred in order to protect himself from potential liability to third parties.”
However, HHJ Keyser QC, after reviewing the authorities, found that Lord Bridge’s said ‘qualification’ was unsupported by any other authorities except for a first instance decision in Morse v Barratt (Leeds) Ltd (1993); a decision that HHJ Keyser QC said had not itself been supported by any persuasive analysis.
Further, HHJ Keyser QC, considered that Lord Bridge’s qualification in the Murphy case was not consistent with the present state of the law, and found that the qualification was inconsistent with the decision in the Robinson v Jones (2011) Court of Appeal case which recognised no other basis for liability for pure economic loss in tort, other than on the basis of an assumption of responsibility. The Court of Appeal found that there was also no compelling policy justification for the suggested qualification as builders responsible for defects that pose risks to personal injury would be liable either under contract or under the Defective Premises Act.
Because of this, in HHJ Keyser QC’s judgment, Lord Bridge’s qualification in the Murphy case was not good law. Therefore no duty of care was owed in the particular case that he was considering.
In addition, HHJ Keyser QC said that the alleged loss in the case that he was considering did not purport to have any relation to the obviating of the risk of personal injury to third parties on the land, so the particular case in question would not have fallen within the purported ‘qualification’ in any event.
Through his judgment, HHJ Keyser QC made it clear that there was no strong policy justification for an exception to the general rule that no duty of care in respect of ‘pure economic loss’ arose from negligence in respect of building defects.
Peter Barnes
Blue Sky ADR Ltd
2019
i This article is provided for information purposes only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by the writer or by Blue Sky ADR Ltd. If specific advice is required, Blue Sky ADR Ltd should be contacted direct at admin@blueskyadr.com
However, the cost of rectifying defective work is considered by the Courts to be pure economic loss which, in the absence of a special relationship giving rise to a duty of care, is not recoverable in negligence.
If cracks in a negligently installed (or designed) pipe lead to an explosion which causes damage to the surrounding building, then the financial consequences of the damage to the building are recoverable.
However, if the cracks in the pipe are discovered and fixed by the owner, he cannot recover that cost from the guilty party in negligence. Nor can he recover his losses occasioned by, for example, shutting down his factory while the cracks are being rectified. These two losses are known as "pure economic loss". They are generally not recoverable in negligence.
The reason for this is because a duty of care must be consistent with an assumption of responsibility. There is no presumed general duty to avoid causing economic loss to another: it must be shown that such a duty was actually and deliberately assumed.
This general rule was established in the Murphy v Brentwood District Council [1991] AC 398 case, where it was said;
“If a builder erects a structure containing a latent defect which renders it dangerous to persons or property, he will be liable in tort for injury to persons or damage to property resulting from that dangerous defect. But if the defect becomes apparent before any injury or damage has been caused, the loss sustained by the building owner is purely economic. If the defect can be repaired at economic cost, that is the measure of the loss. If the building cannot be repaired, it may have to be abandoned as unfit for occupation and therefore valueless. These economic losses are recoverable if they flow from breach of a relevant contractual duty, but, here again, in the absence of a special relationship of proximity they are not recoverable in tort”.
As we all know, rights and liabilities in construction cases are usually protected by a contractual chain, and the Courts consider that a duty of care to avoid causing pure economic loss in tort is inconsistent with the contractual structure.
In the case of Thomas & Anor v Taylor Wimpey Developments Ltd & Ors [2019] EWHC 1229 (TCC), the claimants, Mr & Mrs Thomas, purchased properties from Taylor Wimpey (“TW”) on 19 January 2007.
A claim made by the claimants against TW for TW’s alleged breach of duty of care at common law, arose from the allegation that log retaining walls at the rear of the back gardens of the purchased properties had been inadequately built by TW and were defective. The said Thomas & Anor case was a trial to determine preliminary issues concerning the liability of TW, and one of those preliminary issues was, did TW owe the claimants a duty of care in negligence for the loss and damage that the claimants alleged?
Consistent with the finding in the Murphy case referred to above, HHJ Keyser QC, held on that preliminary issue that TW did not owe the claimants a duty of care in negligence for the loss caused by the defective log retaining walls.
In fact, in the case, the claimants had acknowledged this general rule, but relied on Lord Bridge’s dictum in the above noted Murphy case that;
“The only qualification I would make to [the general rule] is that, if a building stands so close to the boundary of the building owner’s land that after discovery of the dangerous defect it remains a potential source of injury to persons or property on neighbouring land or on the highway, the building owner ought, in principle, to be entitled to recover in tort from the negligent builder the cost of obviating the danger, whether by repair or by demolition, so far as that cost is necessarily incurred in order to protect himself from potential liability to third parties.”
However, HHJ Keyser QC, after reviewing the authorities, found that Lord Bridge’s said ‘qualification’ was unsupported by any other authorities except for a first instance decision in Morse v Barratt (Leeds) Ltd (1993); a decision that HHJ Keyser QC said had not itself been supported by any persuasive analysis.
Further, HHJ Keyser QC, considered that Lord Bridge’s qualification in the Murphy case was not consistent with the present state of the law, and found that the qualification was inconsistent with the decision in the Robinson v Jones (2011) Court of Appeal case which recognised no other basis for liability for pure economic loss in tort, other than on the basis of an assumption of responsibility. The Court of Appeal found that there was also no compelling policy justification for the suggested qualification as builders responsible for defects that pose risks to personal injury would be liable either under contract or under the Defective Premises Act.
Because of this, in HHJ Keyser QC’s judgment, Lord Bridge’s qualification in the Murphy case was not good law. Therefore no duty of care was owed in the particular case that he was considering.
In addition, HHJ Keyser QC said that the alleged loss in the case that he was considering did not purport to have any relation to the obviating of the risk of personal injury to third parties on the land, so the particular case in question would not have fallen within the purported ‘qualification’ in any event.
Through his judgment, HHJ Keyser QC made it clear that there was no strong policy justification for an exception to the general rule that no duty of care in respect of ‘pure economic loss’ arose from negligence in respect of building defects.
Peter Barnes
Blue Sky ADR Ltd
2019
i This article is provided for information purposes only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by the writer or by Blue Sky ADR Ltd. If specific advice is required, Blue Sky ADR Ltd should be contacted direct at admin@blueskyadr.com
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