David Potts They say the pen is mightier than the sword

David Potts, Partner and Head of Business Litigation

Especially when two leading academic express their views in writing and that leads to the loser in a piece of litigation having to write cheques in relation to both parties’ costs.

In 1991, Mr Robinson and his Wife agreed to buy a house which was being built from PE Jones (Contractors) Limited for £350,000.00 or so.  The purchase of the property, 12 Magnolia Rise, Prestbury, was completed around April 1992.  In September 2004, Mr Robinson called a gas service engineer to service his gas fires.  The gas fires failed the service engineers’ test and both were disconnected for safety reasons.  Mr Robinson wrote to the builder saying that the flues were not built in accordance with good building practice or Building Regulations.  It appeared that the cost of repairs would be substantial (about £35,000.00 or so) because the flues would require reconstruction.  Mr Robinson issued proceedings against the builder in December 2006.

So far so good – but then the difficulties had not been then appreciated.  The obvious route would be to sue the builder under the contract.  But Mr Robinson had allowed twelve years to pass by and any contractual claim would have been statute-barred after six years.  One cannot really blame the editors of Keating on Construction Contracts for Mr Robinson’s dilemma because they simply reduced to writing the unfortunate consequences of two different lines of decisions made by the Courts from about 1991 onwards. What the editors said was this:

 “it is difficult to disagree with the view that the contract which stipulates that the contracting party will perform certain services involves an assumption of responsibility which will normally be relied upon by the other contracting party. On the other hand it is true that the authorities prior to Henderson v Merrett and in particular Murphy, did not envisage a builder (or possibly a builder – designer or a pure designer and supervisor of work) owing duties of care in respect of economic loss.  This difference of view requires a reconciliation of these two different streams of authority which will have to await a decision from the Court of Appeal or the House of Lords.”

The first line of cases relates to building contracts and began with the decision of the House of Lords in Murphy v Brentwood District Council in 1991.  There, the House of Lords effectively took a policy decision to limit the number of claims which could be brought in these circumstances and said that if the builder produces something with a latent defect, then he will be liable for personal injury or actual damage to the property resulting from that dangerous defect.  But, if the defect is discovered before any injury or damage has been caused, the loss cannot be recovered.

All construction Lawyers knew and understood that until the House of Lords gave a decision in 1995 in Henderson v Merrett Syndicates Limited (which was nothing to do with a building contract but an action by Lloyds Names against their managing agents).  The House of Lords said that the agents were liable to the Names for “pure economic loss” as well as physical damage.  That decision was made on the basis that the managing agents had assumed a special responsibility to the Names, upon which the Names were entitled to rely.

So which was right, the Henderson line of authority or those following on from Murphy?

Unfortunately for Mr Robinson, the Court found that the defective flues had not caused any personal injury and had not damaged the property.  All Mr Robinson had was a claim for economic loss arising from defects in a house which the builder had erected and Mr Robinson had bought.  The Court of Appeal reaffirmed Murphy and said that Mr Robinson’s primary rights were governed by the contract between him and the builder and that, in the absence of any assumption of responsibility by the builder beyond the contractual terms, the builder did not owe a duty of care to Mr Robinson. As Mr Robinson could not rely upon the contract (because more than 6 years had lapsed since the property was completed) there was no other remedy or right which would impose any liability upon the builder.

The law may well have been clarified for construction Lawyers but one does have to have more than a little sympathy with Mr Robinson who, having paid out two sets of costs, still has fires which he cannot use.