Builders are not liable in negligence for Defects

Sun, 23 Jan 2011

Builders are not liable in negligence for Defects
 
In the last thirty years it has been fashionable to make a claim against a builder in the tort of negligence if defects occur for which the builder has a defence under the contract. The case law was mixed with some judges finding builders liable and some denying any obligation exists.
The Court of Appeal might have closed this argument once and for all. The case is James Andrew Robinson v P E Jones (Contractors) Ltd [2011] EWCA Civ 9. The Court consisted of LJ Rupert Jackson QC (as in Jackson and Powell on Professional liability), LJ Stanley Burnton and LJ Maurice Kay. Jackson LJ gave the leading judgment, more of which below. Burnton LJ put the position very clearly:
“In my judgment, it must now be regarded as settled law that the builder/vendor of a building does not by reason of his contract to construct or to complete the building assume any liability in the tort of negligence in relation to defects in the building giving rise to purely economic loss.”
 
The facts of the case are that by a written agreement made in December 1991 the defendant builder Jones agreed to sell to the Claimant and his wife a house in the course of construction on plot 5 Magnolia Drive, Prestbury. The contract sought to limit the builders liability to the extent of the NHBC Guarantee. As a variation to the contract a second chimney for a further gas fire was instructed and built. The house was complete in April 1992. In September 2004 the claimant had an inspection of the gas fire by British Gas who carried out various tests and found that the chimneys failed the tests and consequently they disconnected the Gas fires. It was found that the Chimneys were defective and would cost around £35,000 to rebuild. The Claimant looked to the builder for the cost of the repair to the Chimneys.
HHJ Stephen Davies found the builder did not have a concurrent liability in Tort for the cost of the repair (pure economic loss). A claim in contract was time barred by statute. The Claimants appealed.
The Court of Appeal reviewed the main case law on tort and the requirement that in order to succeed in a claim for pure economic loss (the cost of repairing the defect itself) it is necessary to show that there was an assumption of responsibility.
The case law in relation to the assumption of responsibility was reviewed in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 where Goff LJ explained that the existence of a contract did not preclude liability on tort where there had been an assumption of responsibility.
The argument ran by those pursuing builders for the last 30 years has been there was a contract therefore there is an assumption of responsibility in tort for pure economic loss.
It is easy to see the argument against a professional that in designing a building they assume responsibility for economic loss. Jackson LJ said:
“It is perhaps understandable that professional persons are taken to assume responsibility for economic loss to their clients. Typically, they give advice, prepare reports, draw up accounts, produce plans and so forth. They expect their clients and possibly others to act in reliance upon their work product, often with financial or economic consequences.”
 
However when it comes to a builder who merely provides labour, plant and materials to construct something shown on a drawing there are other considerations:
“When one moves beyond the realm of professional retainers, it by no means follows that every contracting party assumes responsibilities (in the Hedley Byrne sense) to the other parties co-extensive with the contractual obligations. Such an analysis would be nonsensical. Contractual and tortious duties have different origins and different functions. Contractual obligations spring from the consent of the parties and the common law principle that contracts should be enforced. Tortious duties are imposed by law, as a matter of policy, in specific situations. Sometimes a particular set of facts may give rise to identical contractual and tortious duties, but self-evidently that is not always the case.
 
 
It seems to me that the distinction between contract and tort/delict is essentially the same in both civil law and common law. It was originally articulated by Roman jurists (see Gaius, Justinian's Institutes, 3.88) and it remains the case that (a) contracts and (b) the law of tort are separate sources of obligations. Contractual obligations are negotiated by the parties and then enforced by law because the performance of contracts is vital to the functioning of society. Tortious duties are imposed by law (without any need for agreement by the parties) because society demands certain standards of conduct. There is no reason why the law of tort should impose duties which are identical to the obligations negotiated by the parties. I see nothing in Lord Goff's speech which is inimical to this analysis. On the contrary, Lord Goff observes at 194A "the tortious duty is imposed by the general law, and the contractual duty is attributable to the will of the parties".”
 
In applying this principle to the case Jackson LJ said;
“Building contracts come in all shapes and sizes from the simple house building contract to the suite of JCT, NEC or FIDIC contracts. The law does not automatically impose upon every contractor or sub-contractor tortious duties of care co-extensive with the contractual terms and carrying liability for economic loss. Such an approach would involve wholesale subordination of the law of tort to the law of contract.”
 
In order to succeed the party alleging the duty must show that there was an assumption of responsibility in the Hedley Byrne sense by reference to the facts of the relationship and dealings of the parties. The mere existence of a contract does not come with a co-extensive tortious duty.
On the facts Jackson LJ could see nothing to suggest that the Defendant assumed responsibility to the Claimant. Further the provision that limited liability to the extent of the NHBC Guarantee put matters beyond argument.
It would appear that professionals will commonly (be presumed to?) assume “responsibility which generates a duty of care to protect the client against economic loss.” Whereas the “law does not automatically impose upon every contractor or sub-contractor tortious duties of care co-extensive with the contractual terms and carrying liability for economic loss”. The same applies to those who provide goods and services of whatever nature.
When I read this case my mind immediately wandered back 17 years when I was assisting an expert witness in relation to a case where the sub-sub-subcontractor was asked to clean a roof on a building and was said by the Court of Appeal to owe a duty in contract and in tort because he assumed responsibility which invites reliance no less than the professional adviser simply by taking on the contract Barclays Bank plc v Fairclough Building Ltd No 2 (1995) 76 BLR 1:
“A skilled contractor undertaking maintenance work to a building assumes a responsibility which invites reliance no less than the financial or other professional adviser does in undertaking his work. The nature of the responsibility is the same though it will differ in extent.”
The case was decided on the basis of a tortious obligation. What I always found galling about the case was the contractor did not describe himself as a skilled contractor in cleaning asbestos roofs and was not told that the reason they wanted the roof cleaning was because the roof leaked like a sieve and the Architect wanted to identify the cause of the leaks! Further in Barclays Bank plc v Fairclough Building Ltd No 1 [1995] QB 214 the CA refused to find a concurrent duty in Tort.
The problem now is that the Court of Appeal in Robinson v Jones make no reference to Barclays Bank plc v Fairclough Building Ltd No’s 1 and 2 [1995] QB 214 and (1995) 76 BLR 1 so we now have three contradictory Court of Appeal decisions. At the moment it is 2:1 in favour of there being no automatic assumption of responsibility.
 
By Peter Collie

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