Unhappy Bedfellows

About this time last year, Judge Stephen Davies handed down judgment in the case of Robinson v Jones [2010] EWHC 102(TCC).

The facts were relatively straightforward. Mr Robinson brought a claim against the builders of his property, from whom he had purchased the property, arising out of the alleged defective construction of two gas flues. His problem was that the defects were only discovered some 12 years after purchase. Consequently, any contractual claim would be statute barred and he was therefore forced to assert that he was owed a tortious duty for the economic loss suffered (and thereby to take advantage of section 14A of the Limitation Act).

This opened up the vexed question of the circumstances in which a builder might owe another party a tortious duty not to cause them pure economic loss. According to the editors of both Keating and Emden, this was a question to which there were conflicting first instance decisions in the TCC; some holding that such a claim was precluded by Murphy v Brentwood, others holding that the cases came within the Hedley Byrne/Henderson v Merrett principles.

At first instance, H.H. Judge Stephen Davies explored in impressive detail the jurisprudential basis for the decisions in Murphy v Brentwood DC and Henderson v Merrett and the line of cases which then grappled with how they should be applied to builders.

He concluded that a builder could owe a tortious duty not to cause economic loss to a party with whom they contracted and that, in the absence of any term to the contrary, the existence of a contractual requirement to undertake the work with reasonable skill and care would in and of itself amount to the necessary ‘assumption of responsibility’ required to establish such a duty. On the particular facts of the case, this did the homeowner no favours as there was an exclusion clause in the contract which prevented such a duty arising.

For a fuller examination of the first instance decision, see Outflanking Murphy v Brentwood: Claiming in Tort for Pure Economic Loss (Construction Law Journal Vol 26 No.4).

The Court of Appeal have now handed down their judgment and it makes for interesting reading. On one view it is possible to read the Court of Appeal decision in a very narrow way and as restricted to the ratio. They accepted Judge Davies’ conclusion that the exclusion clause prevented any duty arising (and dismissed an argument that the clause was defeated by UCTA). However, that is not how the judgment reads. The Court makes express reference to the plea in Keating for the first instance disagreements to be resolved and plainly sets out to do so.

Jackson LJ reviews some of the caselaw and concludes, uncontroversially, that (paras 67/8):
“…my conclusion is that the relationship between (a) the manufacturer of a product or the builder of a building and (b) the immediate client is primarily governed by the contract between those two parties. Long established principles of freedom of contract enable those parties to allocate risk between themselves as they see fit…

Absent any assumption of responsibility, there do not spring up between the parties duties of care co-extensive with their contractual obligations. The law of tort imposes a different and more limited duty upon the manufacturer or builder. That more limited duty is to take reasonable care to protect the client against suffering personal injury or damage to other property. The law of tort imposes this duty, not only towards the first person to acquire the chattel or the building, but also towards others who foreseeably own or use it”.

Indeed, nothing in Judge Davies’ decision would suggest otherwise. The point at which the Court of Appeal seem to depart from Judge Davies is in how and in what circumstances the Henderson v Merrett duty can arise; what suffices to amount to an assumption of responsibility?

Much of Judge Davies’ analysis had gone to establishing that Murphy did not preclude a builder from owing such duties because Murphy only dealt with the situation where there was no direct contractual relationship. That was why their Lordships had been so concerned with preventing an “exceedingly wide field of claims”.

Jackson LJ emphasised that the Henderson duty arose in respect of professional retainers. This was because professional persons are to be taken as assuming responsibility for economic loss to their clients. They expect their clients to rely upon their advice and specialist skill and for that reliance to potentially have economic consequences.  If the Court were not burdened by authority, their view appears to have been that in no circumstances could a builder owe a tortious duty not to cause economic loss (see para 82).

However, presumably because of Henderson, they were obliged to accept that one must also “look at the relationship and dealings between the parties”. It is not at all clear what circumstances the Court would have considered sufficient to amount to an assumption of responsibility. The Claimant in the Robinson case sought to rely solely on the existence of the obligations of taking reasonable skill and care in the contract as establishing the necessary assumption of responsibility. The Court held that this was not enough in this case; it was just a normal contract and the law does not automatically impose a coextensive duty of care.

“The parties were not in a professional relationship whereby, for example, the claimant was paying the defendant to give advice or to prepare reports or plans upon which the claimant would act”.
Jackson LJ does not go so far as to say that such a term in a contract would never be enough, nor that one cannot look to the contract as part of the relevant matters from which a tortious duty could arise. However, he does say that in this case he would have been “disinclined” to find such a duty existed irrespective of the contractual exclusion clause.

Burnton LJ is more explicit:
“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”.
Indeed, he appears to go even further and says that those first instance decisions referred to by Jackson LJ which held that builders assumed a duty of care in tort for economic losses were “wrongly decided”. This has the potential for wide application because the cases referred to included the decisions in Storey v Charles Church Developments (1995) 73 Con LR 1 and Mirant-Asia Pacific v Ove Arup International [2004] EWHC 1750, which concerned the duty of professional designers. It is probable that Burnton LJ was only referring to those cases as being wrongly decided insofar as they held that a builder owed a duty in respect of his construction work. In any event, Kay LJ’s judgment agrees with Jackson LJ (only) and so it may be a mute point. It would be regrettable if the law were seeking to make such distinctions on the basis of form rather than substance.

So, the Court of Appeal affirmed the first instance decision, that on the particular facts of this case no tortious duty arose.

However, the weight of the judgment is not in line with Judge Davies’ decision. The Court of Appeal were clearly of the view that:

(1) Builders would not normally owe a duty of care not to cause economic loss because they and their work were not of the kind where such an assumption of responsibility arises, and

(2) The existence of a contractual term to take reasonable care will not normally suffice to create a coextensive duty of care in tort.

Both of these conclusions are difficult to follow, not least because the Court does not clearly explain where their reasoning diverges from that of Judge Davies. For example, at first instance Judge Davies explains his reasoning for concluding that builders can owe such duties.  Builders, he notes, possess a specialised skill, which they know their clients rely upon them exercising with reasonable skill and care and they know that their clients would be likely to suffer economic loss in putting things right if the builder failed to exercise that level of care. It is unclear if the Court of Appeal disagree with that, and if so upon what basis. Also, Judge Davies referred to previous cases from the Court of Appeal (including Barclays v Fairclough (No.2) at (1995 44 Con LR 34)) which appeared to accept that non-professionals and builders could owe just such a duty, but the Court of Appeal on this occasion made little if any reference to them.

Similarly, it remains unclear why the law should recognise an assumption of responsibility adopted outside or in the absence of a contractual agreement, but refuse to recognise such an assumption which is derived from that agreement. The Court of Appeal was much concerned with the position of a manufacturer of products who supplied them to a claimant, but such a situation would not create an assumption of responsibility because the contractual obligation would be strict (satisfactory quality and fitness for purpose) rather than equivalent to tort.

The Court stressed again and again the demarcation between contractual duties (entered into freely by the parties and enforced by law because society requires promises to be enforceable) and tortious duties (imposed by public policy because society requires certain standards of conduct to be upheld) and that where a contract exists then that should be the source of the obligations owed between those parties.

It is this analysis which has the potential for the widest application elsewhere if it is not to be confined to the facts of this case. No longer will claimants be able to plead in confidence, without relying on something more, that “Further or alternatively, the Defendant owed the Claimant a coextensive duty in tort”. There will be some practitioners scrambling back through recent pleadings and hoping this case goes to the Supreme Court.

A fuller discussion of this case is due to be published shortly in the Construction Law Journal.