PROFESSIONAL NEGLIGENCE
THE CHANGING COASTLINE OF LIABILITY
John L. Powell Q.C.
Even the briefest acquaintance with the world’s major financial centres, and especially Hong
Kong, London or New York, immediately confirms that we live in world dominated by
professionals. The magnificent multi-storey edifices adorning the shores of this and similar
cities are the castles and palaces of the present age, proclaiming the influence and power of
professionals.
“Professional" is an acquisitive concept, acquisitive of aspirations and expectations - but also
of liabilities. Claims for professional negligence are now common. Indeed they will become
more so. This will be a product of increasing demand for their services, specialisation,
higher standards and intolerance of bad performance by highly educated societies.
In a claim for negligent design against an architect arising from the collapse of a concrete
roof, Erle J. in 1853 said:
"... if you employ [an architect] about a novel thing, about which he has little experience, if it
has not had the test of experience, failure may be consistent with skill. The history of all
great improvements show failure of those who embark in them".1
The claim failed.
Contrast this with Lord Edmund Davies's observation in 1980 in a negligent design case
arising from the collapse of a television transmitter mast, reflective of a more consumer
orientated society:
"The law requires even pioneers to be prudent".2
The claim succeeded.
In that contrast of statements, over a century apart, is summated the sea change in the attitude
of society and indeed the courts towards professionals when things go wrong. Professionals
and their insurers will need to adapt accordingly.
1
Turner v Garland and Christopher (1853) cited in Hudson's Building
Contracts (4th ed., 1914) Vol. 2, p. 1.
2
I.B.A. v E.M.I. and B.I.C.C. (1980) 14 Build. L.R. 1 (H.L.) at 28.
1
Nevertheless, the landscape of the law is far from bleak. The coastline of liability continues
to change, but with erosion on some shores made up by accretions on others. The object of
this paper is to pick out some features of that landscape, including some which are ripe for
climatic change.
Given my experience, my main focus will be English law (though from a Welshman’s
perspective - like many of those present, English is my second language). Nevertheless, this is
an area of the law which has been, and will continue to be, considerably enriched by case law
from other jurisdictions, including this jurisdiction. Indeed, I have no doubt the sense of
common principles and values in this, as in other areas, will lead soon to a body of case law
which will be increasingly recognised as an international common law. The practice here of
inviting judges of the highest distinction from other jurisdictions to sit in your Court of Final
Appeal is one which I hope will soon become general elsewhere, including Britain.
The duty of care
Let me start with basic principles. A professional person is under a duty to exercise
reasonable care and skill. The required standard of care and skill is that of the ordinary
skilled person of the same discipline.3 It is often referred to as the Bolam principle after
McNair J.'s eloquent expression of it in a direction to the jury in a medical negligence case of
that name,4 but its roots may be traced back to the nineteenth century and earlier.
The duty arises not only as an implied (if not express) term of the contract between the
professional man and his client. It may also arise in tort. So a professional may owe a duty of
care to his client running concurrently with the like duty in contract. He may also owe a duty
of care in tort to a third party. Breach of the tortious duty gives rise to liability in the tort of
negligence.
The duty is usually invoked in support of the proposition that a professional does not
impliedly agree to produce a particular result. He will be taken as having done so only if he
has expressly so agreed. Otherwise the client's bargain is rather the product of the care which
an equivalent professional could reasonably have been expected to exercise in the same
circumstances. The exercise of such care may be consistent with failure to achieve the
desired result. The paradigm is a doctor's failure to cure his patient.
The latter point impacts on the measure of loss consequent upon failure to exercise care. The
application of the restorative principle in contract entails that the claimant is entitled to the
benefit of his bargain, whereas its application in tort entails that he is restored to the position
which he would have occupied but for the tort. In professional negligence cases the
3
It is variously expressed, including as the standard which members of the
relevant profession ought to achieve.
4
Bolam v Friern Hospital Management Committee [1957] 1 W.L.R. 582.
2
respective consequences of applying the contractual and tortious measures coincide. This
does not mean that the tortious measure is adopted in preference to the contractual measure.
The position of having care exercised represents both the contractual bargain and the position
which the claimant would have occupied but for the defendant's negligence.
Criticism
The duty of care and skill has clothed the law relating to professional negligence with an
apparent coherence and exclusivity of analysis. Indeed, it has nurtured a tort culture which
has obtruded on the contractual analysis which may otherwise have prevailed. Even the
classification of relevant case law under the title professional negligence immediately
encourages association with the tort of negligence. "Professional liability" is a more neutral
and accurate title.
The tort culture is not the product of language alone. More significant factors are the
centrality accorded to the duty of care and skill and its attribution to both contract and tort.
The contractual duty of care and skill
Although the classification "professional negligence" invites association with the tort of
negligence, contract rather than tort provides the framework for resolving the vast majority of
claims against professionals. Analysis follows the conventional course of first ascertaining
the nature of the bargain as reflected in express and implied terms. Tort needs only to be
considered to the extent necessary to overcome perceived obstacles arising from the
contractual analysis.
Despite the importance of the duty of care and skill, it is only one of number of duties. As
Oliver J. observed:
"The classical formulation of the claim in this sort of case as 'damages for negligence and
breach of professional duty' tends to be a mesmeric phrase. It concentrates attention on the
implied obligation to devote to the client's business that reasonable care and skill as if that
obligation were not only a compendious, but also an exhaustive, definition of all the duties
assumed under the contract created by the retainer and its acceptance. But, of course, it is
not. A contract gives rise to a complex of rights and duties of which the duty to exercise
reasonable care and skill is but one."5
The focus of the duty is on the standard of performance and not result. Nevertheless, it also
impacts on the desired result in that it allows for the possibility that the result may not be
achieved. Failure to achieve the result may be consistent with the exercise of reasonable care
and skill. It is the latter feature of the duty which explains its early selection as the standard of
performance required of doctors and advocates. In a medical negligence case tried in 1838
Tindal C.J directed a jury:
5
See Midland Bank Trust Co. v Hett, Stubbs and Kemp [1979] Ch. 384 at 434.
3
"Every person who enters into a learned profession undertakes to bring to the exercise of it a
reasonable degree of care and skill. He does not undertake, if he is an attorney, that at all
events you shall gain your case, nor does a surgeon undertake that he will perform a cure;
nor does he undertake to use the highest possible degree of care."6
The rationale for the duty is readily recognisable in the case of a surgeon, certainly in 1838, as
based on a pragmatic and reasonable assessment of the achievability of the desired result. It
reflected the need to take account of the level of medical knowledge and skill, the health and
cooperation of the patient and other factors beyond the surgeon's control. In the case of an
attorney, it reflected the need to take account of the cooperation of the client, the available
evidence, the credibility and unpredictability of witnesses, the resources deployed by the
parties and other factors beyond the attorney's control. Likewise in the case of other
professionals the selection of the duty is explicable in terms of an assessment of features
specific to their occupation.
The occupations which today are regarded as professions, however, extend far beyond those
regarded as such in 1838. They have increased as human knowledge and skill and consequent
specialisation have increased. Inevitably the word "professional" has become less distinct in
its connotation and unsatisfactory as a classification of occupations. Does it include, for
example, so called “consultants”? To pose the question is to expose yet another penumbra.
Even within the same profession there may be a vast diversity of knowledge, skill and
function. While some operate at the frontiers of knowledge and skill, others engage in the
routine. Perceptions and actual levels of achievability vary. Moreover, achievability
increases with improving knowledge and skill, ready access to information by electronic and
other means, and the establishment of standards by professional, regulatory and other bodies,
Against a background of increasing achievability it is surprising that the duty to exercise
reasonable care and skill continues to be regarded as generally applicable in the case of
contracts with professionals and that the courts have been so hesitant to countenance a stricter
or higher duty.
A stricter duty?
6
Lanphier v Phipos (1838) 8 C. & P. 475.
4
The question of a stricter duty has arisen most frequently in a building context. It was
addressed by the Court of Appeal in England in 1975 in a claim against a firm of engineers in
relation to the design of a factory floor which proved unable to withstand vibration from
fork-lift trucks.7 It was held that the engineers were in breach not only of their duty to
exercise reasonable care and skill but also of an implied duty that the factory floor would be
reasonably fit for the purpose for which they knew it was required. The latter was implied as
matter of fact based on the actual intention of the parties as distinct from being implied by
law based on the presumed intention of the parties. Two of the judges were at pains to
emphasise that the case established no general principle. In contrast, Lord Denning M.R. first
stated the conventional position:
"Apply this to the employment of a professional man. The law does not usually imply a
warranty that he will achieve the desired result, but only a term that he will use reasonable
care and skill. The surgeon does not warrant that he will cure the patient. Nor does the
solicitor warrant that he will win the case. But when a dentist agrees to make a set of false
teeth for a patient, there is an implied warranty that they will fit his gums: see Samuels v
Davis [1943] K.B. 526 ",
and then speculated tantalizingly:
"What then is the position when an architect or an engineer is employed to design a house or
a bridge? Is he under an implied warranty that, if the work is carried out his design, it will
be reasonably fit for the purpose? Or is he under a duty to use reasonable care and skill?
This question may require to be answered some day as a matter of law."8 [emphasis added]
7
Greaves & Co. (Contractors) Ltd. v. Baynham Meikle & Partners [1975] 1
W.L.R. 1095 (C.A.).
8
Ibid. at 1100.
5
The question of a stricter duty arose again in a claim against specialist sub-contractors in
relation to the design and construction of a television mast which collapsed.9 The Court of
Appeal rejected the argument that since design was normally a function of a professional
man, the sub-contractors should be under no stricter duty than the duty of reasonable care and
skill. The issue of the extent of obligations in relation to design had to be determined in the
ultimate analysis by reference to the interpretation of the contract concerned and there was no
good reason not to import an obligation as to reasonable fitness of the design in the relevant
contract.10 On further appeal to the House of Lords11 the matter was only considered, obiter
by Lord Scarman. He accepted the stricter duty.12 He regarded the fact of an article being
supplied as well as designed as the crucial distinction justifying the stricter duty.13 The same
distinction was the basis for the Court of Appeal rejecting an alleged implied warranty to
provide a safe floor on the part of engineers in a claim arising from their design of communal
showers.14 Dillon L.J. said:
"In this court we are bound by the established rule that a professional man ... only
undertakes, when his advice is sought, to use reasonable care and skill in his profession, and
does not warrant the accuracy of his advice in the absence of special circumstances."15
Neill L.J. provided a negative answer to Lord Denning's earlier speculation:
9
I.B.A. v E.M.I. and B.I.C.C. (1978) 11 Build. L.R. 29 (C.A.); (1980) 14 Build.
L.R. 1 (H.L.).
10
(1978) 11 Build. L.R. 29 at 49-52. It also held that there was a good
commercial reason in favour of such an obligation: contracts such as the one
concerned should be interpreted so that ultimate liability, if something went
wrong, should rest where it properly belonged, i.e. what would now be
recognised as an economic efficiency argument.
11
(1980) 14 Build. L.R. 1. While the Court of Appeal absolved the subcontractors of negligence, the House of Lords held that they were negligent.
12
Relying on Samuels v Davis [1943] K.B. 526 (C.A.).
13
(1980) 14 Build. L.R. 1 at 47. See also (1978) 11 Build. L.R. 29 at 50-51
(C.A.).
14
George Hawkins v Chrysler (U.K.) and Burne Associates (1986) 38 Build.
L.R. 36 (alleged duty to provide a safe floor).
15
Ibid. at 54; also at 50-51.
6
"I am satisfied that as the law stands at present, a warranty of fitness of purpose will not be
implied as matter of law where the consulting engineer is retained to advise or to design."
Claims arising from a building context provide ripe territory for arguing in favour of a stricter
duty than the duty of care, given the close connection between advice given by building
professionals and the supply of products, usually by others. Claims against computer
consultants provide another, given that a product, whether hardware or software, is generally
supplied.
Nevertheless, English law is presently resistant to implying a duty higher or stricter than the
duty to exercise reasonable care and skill in relation to a professional person. It will be
admitted only in "special circumstances". It may be implied as matter of fact and, probably,
only when not merely information or advice is given, but a product is supplied.
Present judicial perceptions of the common law position are reinforced by classifications of
contracts reflected in statutes relating to terms to be implied in different types of contract.
Hence in many kinds of "contracts of sale of goods",16 terms to be implied include terms as
quality and fitness.17 In the case of many kinds of "contracts for the transfer of goods",18
which include contracts for work and materials such as a building contract, there are like
terms.19 In contrast, however, in the case of a "contract for the supply of a service",20 there is
no statutory implication of terms as to quality and fitness, though where the supplier is acting
in the course of a business, there is an implied term that the supplier will carry out the service
with reasonable care and skill.21
16
See Sale of Goods Act 1979. For definition see s. 2.
17
Ibid. s. 14.
18
See Supply of Goods and Services Act 1982. For definition see s. 12 and note
that a contract is a contract for the supply of a service whether or not goods are
transferred or bailed: s. 12(3).
19
Ibid. s. 3.
20
Supply of Goods and Services Act 1982. For definition see s. 12 and note that
a contract is a contract for the supply of a service whether or not goods are
transferred or bailed: s. 12(3).
21
Ibid. s. 13.
7
Grounds for stricter duty related to result
Nevertheless there are persuasive grounds for more frequent recognition in professional
contexts of duties stricter than the duty of care and skill, which are related to the desired
object or result as distinct from performance.
Such duties are readily recognised in relation to suppliers of goods and suppliers of goods and
services. Yet there is nothing inimical to the implication of such duties which is intrinsic to
all service providers. This is apparent from diversity of services supplied in a modern
economy (indeed services are the largest component). Services include the most mundane and
routine and the intended result or object of the services may be readily described including in
terms of the quality of achievement, and be readily achievable. While statute provides for
implication of a duty of care and skill in relation to a "contract for the supply of a service", it
does not preclude the implication of a stricter duty related to result.
Professionals are a category of service providers. Yet again, however, there is nothing
intrinsic to all professionals which is inimical to the implication of stricter duties and duties
related to result. This is apparent from the indistinctiveness of the category as well as from
the diversity of services provided by professionals.
The better approach is to focus on the particular contract and the service required and to
ascertain whether there are specific considerations which favour or, as the case may be,
disfavour stricter duties than the duty of care and skill. Disfavouring considerations are the
uncertainty of science, the inherent inexactness of the particular endeavour, dependence on
the cooperation of others, including the client, and more generally relative lack of control of
the necessary steps for the achievement of a successful result. Broadly it remains the case
that, however indistinct the present day concept of a profession, those considerations feature
more often in the case of professionals than in the case of other service providers.
Nevertheless, apparent from case law is a tendency to resist acceptance of stricter duties,
justified in terms of the status of a professional rather than in terms of considerations specific
to the nature of the particular contract and the service required. The tendency originates from
the nineteenth century and the then narrow perception of professions. It is a product of
generalisation from apparent precedent without sufficient regard to changed circumstances,
especially the expanding category of professionals, the nature of the services provided by
them and increasing knowledge and skills. Progress may be traced along a path of
achievement extending from the possible to the probable and even to the expected in the
absence of culpable error. Many professionals have progressed along this path. Barbed
tribute to its acknowledgment by the courts is the adverse claims experience of professionals
in recent years.
While in the case of a vast range of services it is inappropriate to imply duties extending
beyond the duty of care and skill, the fact that they are provided by persons perceived as
professional no longer provides a rationale justification. That justification should rather be
8
recognised as an anachronism which, though in its day an appropriate capsule for a number of
specific considerations, should now be discarded. It diverts attention from separate
evaluation of the individual potency of those specific considerations in a particular case.
Moreover, as a justification it frequently obscures the transparency which there ought to be
between the judge's expressed legal reasoning and his conclusion.
In recent years it has become apparent that, in relation to several types of claim against
professionals arising from failure to achieve the desired result, the courts are particularly
prone to find against the professional however understandable his apparent error. Examples
are claims against solicitors in relation to conveyancing, surveyors in relation to house
surveys and valuations, architects and engineers in relation to design failures and financial
advisors in relation to advice on pensions.22 Conventionally, pleading and reasoning intone
the Bolam test and liability deduced from a conclusion that the defendant failed to exercise
the care and skill of a paragon of virtue, the competent like professional. The process
frequently involves long and detailed investigation and analysis of fact, including the
practices of the particular profession: hence the motivation for expert evidence, often
complex and of dubious relevance. Indeed over the last decade the volcano of professional
negligence claims has spewed out a new profession, expert witnesses.
The process is in large part the consequence of the test of liability being care and skill in
performance. By allowing for the possibility that failure to achieve the desired result may be
consistent with care and skill, it permits and encourages extensive exploration and assessment
of that possibility by way of defence.
Yet in several classes of claim, it is a vain defence. Despite imposition of liability by
reference to the test, the more realistic perception of the judge's reasoning desired result
which was achievable and should have been achieved. This reasoning should be transparent
and be openly expressed.
22
The courts have been less stringent in relation to claims against accountants
and auditors arising from a takeover and auditing context.
9
Lord Hoffman in a lecture in 199323 explained such classes of cases in terms of risk allocation
decisions by judges, having regard to the availability of professional negligence insurance, i.e.
deep pockets if not broad shoulders. In support he instanced two well known decisions in a
conveyancing context (one from Hong Kong) in which liability was imposed notwithstanding
cogent evidence that the impugned conduct reflected common practice.24 He went further:
"What you are getting very close to there is treating the conveyancing solicitor as if he had
contracted to produce a result. He has contracted to give you a clear title and practically
any mistake on his part which prevents that result from being attained will attract liability.
The underlying truth seems to be that judges regard conveyancing as an activity which
should give a result to the client."
and later:
"The trouble is that most lawyers, judges included, find it much easier to reach the right
answer than to explain how they have done so. They prefer to rest upon well-worn formulae
rather than to puzzle out the real reasons why one case is different from another."
The Bolam test is one such formula.
23
To the Professional Negligence Bar Association on 14 October 1992: see
(1994) 10 P.N. 6.
24
See G & K Ladenbau (U.K.) Ltd. v Crawley & De Reya [1978] 1 W.L.R. 266;
Edward Wong Finance Co. v. Johnson, Stokes & Master [1984] A.C. 296.
10
While in many cases there may be little difficulty in defining the result which the professional
is to be taken as having agreed to achieve,25 in others there may be difficulty. This difficulty
may be invoked, doubtless correctly in many instances, as symptomatic of the professional
not having agreed to achieve a result.
Apart from transparency, readier recognition of circumstances in which a professional person
is to be taken as having agreed to achieve a result would have another benefit. There would
be further incentive for detailed contracts of engagement agreements in which the
professional's duties are clearly stated and explained. Such documents enable a more
informed assessment of the relevant services and reduce the scope for misunderstanding and
argument as to the duties undertaken. Insofar as the professional does not wish to be taken as
having agreed to produce a particular result, that can be expressly provided for. Professional
and other bodies clearly have an obvious role in developing standard agreements. This is a
role which they are well used to, as best illustrated in the case of professional associations for
architects and engineers and in the case of financial services regulators.
There would be another consequence. The more precisely and comprehensively that a
professional's duties to the client are recorded in a written contract, the more the scope for
contractual terms which may be seen as inconsistent with the admission of a concurrent duty
of care in tort.
The concurrent duty of care in tort
Since Oliver J.'s decision in the context of solicitors in Midland Bank Trust Co. Ltd. v Hett,
Stubbs & Kemp,26 claims against professionals have generally been decided without
questioning of a professional's concurrent duty of care in tort to his client, subsisting along
with contractual duties to the claimant. That this can no longer be doubted is now apparent
from the decision of the House of Lords (in a Lloyd's context).27
25
e.g. in the case of a conveyancing solicitor, a duty to secure a clear title and in
the case of an architect a duty to provide a design which is reasonably fit for its
purpose.
26
[1979] Ch. 384: solicitor owed to his client a duty of care arising both in
contract and tort.
27
See Henderson v. Merrett Syndicates [1995] 2 A.C.145 (H.L.)
11
The motivation for asserting the concurrent duty in tort has related to limitation of actions,
contribution claims, contributory negligence and, generally unsuccessfully, to maintain a duty
wider in scope than could be maintained on the basis of contract. Both claimants and
defendants have found it to their advantage to assert the concurrent duty, but for different
reasons. However, in the U.K. perceived anomalies and injustices relating to those matters,
which originally motivated the courts to recognise the concurrent tortious duty, have now
almost all been eradicated by statutory changes in the case of limitation28 and contribution
claims 29 and by recognition that the defence of contributory negligence can be raised even to
a contractual claim where the defendant’s liability in contract is the same as his liability in the
tort of negligence.30
Although the original motivations for the assertion of a concurrent duty have gone, it is
probably too well entrenched in the U.K. to succumb to renewed attack.
Duty of care in tort to avoid economic loss
The debate whether to admit a concurrent duty of care in tort has been closely related to the
general debate about the appropriate test for a duty of care in tort to avoid economic loss,
including between non-contracting parties. Fertile ground for its ready admission was
provided in the late 1970's and early 1980's by the "Anns orthodoxy".31 This asserted a single
general principle, centred on the concept of reasonable foresight subject to negativing policy
considerations, applicable in all circumstances to determine the existence of a duty of care.32
The approach led to recovery of damages being permitted in a widening range of
circumstances.33 Later in a series of appellate authorities, the Anns orthodoxy was repeatedly
28
See the Latent Damage Act 1986, amending the Limitation Act 1980.
29
See Civil Liability (Contribution) Act 1978, extending contribution claims
beyond tortfeasors.
30
See Forsikringsaktieselskapet Vesta v Butcher [1986] 2 All E.R. 488
(Hobhouse J.) as approved by the Court of Appeal [1989] A.C. 852. Cf.
Australia: see Astley v Austrust Ltd. (1999) 161 A.L.R. 155 (High Court of
Australia)
31
See Lord Wilberforce's two stage test in Anns v Merton L.B.C. [1978] A.C.
728 at 751-752.
32
see Anns v Merton L.B.C. [1978] A.C. 728, per Lord Wilberforce at 751-752.
33
The high water mark was the building case of Junior Books Ltd v Veitchi Co.
Ltd. [1983] 1 A.C. 520 (duty of care by subcontractor to building employer to
avoid economic loss). The decision, though not overruled, is now generally
regarded in the U.K. as apostasy if not heresy.
12
eschewed and ultimately condemned as heresy.34 In contrast in other jurisdictions, especially
New Zealand the two stage Anns test lives on.35
34
See in particular: Governors of the Peabody Donation Fund v Sir Lindsay
Parkinson & Co. Ltd [1985] A.C. 210 (H.L.); Tai Hing Cotton Mill Ltd. v Liu
Chong Hing Bank Ltd [1986] A.C. 80 (P.C.); Yeun Kun Yeu v AttorneyGeneral of Hong Kong [1988] A.C. 175 (P.C.); 53 (H.L.) D & F Estates v
Church Commissioners [1989] A.C. 177 H.L.); Smith v Bush [1990] 1 A.C.
861 (H.L.); Caparo Industries Plc v Dickman [1990] 2 A.C. 605; Murphy v
Brentwood D.C. [1991] 1 A.C. 398 (H.L.).
35
See South Pacific Manufacturing Co. Ltd. v New Zealand Security
Consultants & Investigations Ltd. [1992] 2 N.Z.L.R. 282 (New Zealand Court
of Appeal).
13
Judicial debate as to the appropriate test for a duty of care is modern judicial equivalent to the
debate in Swift's Gulliver's Travels as to whether it is more appropriate to crack an egg at the
top or the bottom. It has now subsided. Recent cases in the U.K. exemplify two general
approaches, the first based on a three stage test36 and the second based on the concept of
assumption of responsibility and reliance.
The ingredients of the three stage test are (1) foreseeability: whether it was reasonably
foreseeable that the claimant would suffer the kind of damage which occurred; (2) proximity:
whether there was sufficient proximity between the parties; (3) whether it was just and
reasonable that the defendant should owe a duty of care of the scope alleged. There are
several recent examples of its adoption. 37
36
Applicable whatever the nature of the harm suffered by the claimant: see Marc
Rich & Co. AG v. Bishop Rock Marine Co. Ltd. [1996] 1 A.C. 211 at 235E.
Note as to the utility of the test, Stovin v Wise [1996] A.C. 923 at 931H-933A,
per Lord Nicholls.
37
Smith v. Eric S. Bush [1990] 1 A.C. 831 (successful claim against surveyors);
Caparo Industries plc v. Dickman [1990] 2 A.C. 605 (unsuccessful claim
against auditors); Spring v. Guardian Assurance plc. [1995] 2 A.C. 296
(successful ex-employee reference claim); Marc Rich & Co. AG v. Bishop
Rock Marine Co. Ltd. [1996] 1 A.C. 211 (unsuccessful claim against marine
classification society).
14
The assumption of responsibility principle has been variously expressed, but the essence of it
is whether the nature of the relationship between the parties was such that one can fairly be
said to have assumed a responsibility to the other as regards information, advice or services
provided and that the other reasonably relied upon such assumption of responsibility. Its
origin is frequently attributed to the speeches in Hedley Byrne & Co. Ltd. v. Heller &
Partners Ltd.,38 which established that damages for economic loss were recoverable for
negligent misrepresentations . It was favoured by Lord Goff in a trilogy of cases39 and has
been applied since.40 Yet the assumption of responsibility principle has not supplanted the
three stage test, as later cases demonstrate.41
The best that a general approach can provide is not a determining mechanism but rather a
broad framework within which to weigh up the competing considerations.42 Hence a now
well established analytical approach depending on the particular context and proceeding from
recognised paradigms. Indeed it has been said that whether the three stage test or the
assumption of responsibility test is applied, the application of each should lead to the same
result.43
38
[1964] A.C. 465. In its application to a claim against auditors arising from a
takeover, see Scott Group Ltd. v McFarlane [1978] 1 N.Z.L.R. 553 (New
Zealand Court of Appeal), esp at 566-567.
39
Spring v Guardian Assurance plc [1995] 2 A.C 296; Henderson v Merrett
Syndicates [1995] 2 A.C. 145 (successful claim by Lloyds Names against their
direct and indirect agents); White v Jones [1995] 2 A.C. 207 (successful claim
by disappointed beneficiaries against solicitor instructed by a testator to
prepare a will in their favour).
40
e.g. in Williams v. Natural Life Health Foods Ltd. [1998] 1 W.L.R. 830
(unsuccessful claim against director of a company.
41
e.g. Marc Rich & Co. AG v. Bishop Rock Marine Co. Ltd. [1996] 1 A.C. 211
42
Note Caparo Plc v. Dickman [1989] 1 Q.B. 653, esp. Bingham L.J.; [1990] 2
A.C. 605 at 618 per Lord Bridge. See also Marc Rich & Co. AG v. Bishop
Rock Marine Co. Ltd. [1994] 1 W.L.R. 1071 (C.A.) per Saville L.J., quoted
with approval at [1996] 1 A.C. 211 at 235-6 (H.L.) by Lord Steyn; also Stovin
v Wise [1996] A.C. 923 at 931-933, per Lord Nicholls. This point also answers
criticism of the assumption of responsibility principle: see Smith v. Eric S.
Bush [1990] 1 A.C. 831 at 862 and Caparo Industries plc v. Dickman [1990] 2
A.C. 605 at 628 and at 637.
43
BCCI (Overseas) Ltd. (in liquidation) v. Price Waterhouse No. 2) (C.A.)
[1998] P.N.L.R. 564.
15
The leading authorities44 demonstrate the development of more specific tests for a
determining whether a duty of care is owed to a third party in respect of statements and
advice. The appropriate test has been variously expressed. A wide formulation is that by Lord
Morris in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.45 A narrower formulation is by
Lord Oliver in Caparo Industries plc v. Dickman46 in the context of auditors. He expressed
the test for a duty of care in terms of actual or inferred knowledge (not intention) by the
informant/adviser of (1) the required purpose of his advice whether described specifically or
generally, (2) communication to the advisee, either specifically or as a member of an
ascertainable class, for that purpose and (3) likely reliance by the advisee for that purpose
without independent enquiry, together with actual reliance by the advisee to his detriment.47
A similar polity appears to have been reached in Australia,48 Canada49 and the U.S.A.50
Caparo, following Hedley Byrne, reaffirms an objective test for a duty of care in tort. A
subjective test based on intention was expressly eschewed.51
While some judges demonstrate a reluctance to acknowledge the role of policy, policy
considerations very much come into play. Thus, speaking generally, a policy determination is
detectable in the reversal in the U.K.52 of the previous trend, encouraged by Anns, which
44
See Lord Denning's dissenting speech in Candler v. Crane, Christmas & Co.
[1951] 2 K.B. 164 esp. at 179 - 185; Hedley Byrne & Co. Ltd. v Heller &
Partners Ltd. [1964] A.C. 465; Caparo Industries plc v. Dickman [1990] 2
A.C. 605.
45
[1964] A.C. 465 at 503.
46
[1990] 2 A.C. 605 at 638B-E.
47
Caparo Industries plc v Dickman [1990] 2 A.C. 605 at 638.
48
Esanda Finance v Peat Marwick (1997) 71 A.L.J.R. 448 (High Court of
Australia).
49
Hercules Managements Ltd. v Ernst & Young (1997) 146 D.L.R. (4th) 577
(Supreme Court of Canada).
50
Credit Alliance v Arthur Andersen & Co. (1985) 483 N.E. (2d) 110 (Court of
Appeals of New York.
51
Caparo Industries plc v Dickman [990] 2 A.C. 605 at 654 reflecting Smith v
Eric C. Bush [1990] 1 A.C. 831 at 639; see also BCCI (Overseas) Ltd. v Price
Waterhouse (No 2) [1998] P.N.L.R. 564 at 588.
52
See Peabody v Donation Fund v Sir Lindsay Parkinson & Co. Ltd. [1985]
A.C. 210; Investors in Industry Ltd. v South Bedfordshire D.C. [l986] Q.B.
l034 and ultimately Murphy v Brentwood D.C. [1991] 1 A.C. 398.
16
favoured house occupiers being able to recover financial loss (e.g. repair costs) in tort against
local authorities for defective building works negligently inspected by their employed
building inspectors. That policy determination would appear to have been motivated in part
by adverse and costly claims experience by local authorities and in part by the private selfhelp climate of the l980's. A case of judicial privatisation - of liability. Likewise in relation
to tort claims by company shareholders against auditors, a policy determination is detectable
in Caparo Industries Plc v Dickman.53 The previous surge in such tort claims can now be
seen to have met its Stalingrad in that decision of the House of Lords.
Once the role of policy is recognised, the readier the recognition that much depends on the
context. Policy considerations relevant to claims by shareholders against accountants may
not seem to have immediate relevance to claims by purchasers against local authority building
inspectors. On the other hand, there a need to strive for consistent rationalisation in terms of
principle and to avoid the law deteriorating into a series of "pockets" demonstrating
apparently inconsistent application of principle.
53
[1990] 2 A.C. 605.
17
Nevertheless, it is apparent from a series of authorities in the U.K. and other common law
jurisdictions that there are differing judicial perceptions as to when a duty of care to in tort is
owed, in particular in a building context. Doubtless the environment in which judges live is
influential. As to the vexed question whether a building owner should be able to recover in
tort from the original builder or building inspection authorities the cost of repairing a
potentially dangerous defect, the policy considerations are far more compelling where the
defect is in cladding fixings to an office block high above a busy thoroughfare in Hong Kong,
than where the defect consists of weak foundations causing cracks to a one or two storey
house in British suburbia.54
Certain broad observations may be made.
In a statutory and regulatory context it is critical in first to assess the relevant statute and
regulatory regime. Considerations decisive in such a context to negate a duty of care alleged
to have been owed to a third party by statutory, ministerial, administrative, regulatory and
complaints-handling bodies have been the availability of alternative bases of redress55 and
regulatory overkill,56 even though such redress may be of little value to the third party
concerned.
54
Compare the House of Lords decisions in D&F Estates Ltd. v. Church
Commissioners for England [1989] 1 A.C. 398, Murphy v. Brentwood District
Council [1991] 1 A.C. 398 and Department of the Environment v. Thomas
Bates and Son [1991] 1 A.C. 490 with the decisions of the Supreme Court of
Canada in Winnipeg Condominium Corporation v. Bird Construction Co.
(1995) 121 D.L.R. (4th) 193 and of the High Court of Australia in Bryan v
Maloney (1995) 128 A.L.R.163.
55
See Caparo Industries v Dickman [1990] 2 A.C. 605; Murphy v Brentwood
D.C. [1991] 1 A.C. 398. As to a regulatory context, see Yeun Kun Yeu v
Attorney General of Hong Kong [1988] A.C. 175; Davis v Radcliffe [1990] 1
W.L.R. 821 (P.C.); Wood v Law Society Times L.R. 29.7.93; a ministerial
context see Rowling v Takaro Properties Ltd. [1988] 1 A.C. 475 (P.C.); and an
administrative context see Jones v Department of Employment [1989] Q.B. 1
(C.A.). For like reasoning in the context of copyright, see C.B.S. Songs Ltd. v
Amstrad Consumer Electronics Plc [1988] A.C. 1013 (H.L.) at 1059-1060,
and receivership, see Downsview Ltd. v First City Corporation Ltd. [1993]
A.C. 295 (P.C.) at 316.
56
See Rowling v Takaro Properties Ltd. [1988] 1 A.C. 475 (P.C.) at 502.
18
Contractual terms and a contractual matrix are very important. A building or engineering
project usually involves a matrix of contracts. Thus in considering whether A owes a duty of
care to C, it may be relevant to have regard to the terms of a contract between B and C,57 e.g.
where A is an engineer engaged by an architect, B, who is in turn engaged by the employer,
C. The contractual matrix if it does not preclude tortious duties, may circumscribe them.
Proper characterisation of the nature of the harm or loss sustained is critical to the assessment
of whether a duty of care was owed by the particular defendant to the claimant to avoid or
prevent the loss sustained.58 Financial or economic loss needs to be distinguished from
physical injury or damage to property. Judges are predictably more circumspect in allowing
recovery of damages in tort in respect of economic loss. Nevertheless, intractable problems
arise on how to characterise certain damage, as the Bank of East Asia is the most recent
reminder.59 At present so far as English law is concerned, the following propositions can be
supported in a design professional negligence context.
(1)
A design professional in designing a structure will owe to third parties a duty to take
care that his design does not cause injury to them60 or damage to their property other
than the designed structure.61
57
See Southern Water Authority v Lewis and Duvivier (1984) 27 Build L.R. 111.
Also very recently, British Telecommunications Plc v James Thomson & Sons
(Engineers) Ltd. [1999] BLR 35 HL (Scotland) and in Canada Husky Oil v. St
John Shipbuilding (1997) 153 D.L.R. (Supreme Court of Canada).
58
See in particular the judgment of Brennan J. in Sutherland Shire Council v.
Heyman (1984-1985) 157 C.L.R. 425, which has been especially influential in
the development of English law in this field.
59
Bank of East Asia Ltd. v Tsien Wui Marble Factory Ltd. [2000] HKC 1: see
below.
60
See Driver v William Willett (Construction) Ltd. [1969] 1 All E.R. 665 (safety
engineer); Clay v A.J. Crump & Sons Ltd. [1964] 1 Q.B. 533 (architect);
Eckersley v Binnie and Partners (1988) 18 Con. L.R. 1 (engineers); Targett v
Torfaen B.C. [1992] 3 All E.R. 27. Also the Australian cases: Voli v
Inglewood Shire Council [1963] A.L.R. 657 (architect); Introvigne v
Commonwealth of Australia (1980) 32 A.L.R. 251 (architect); Canberra
Formwork Pty. Ltd. v Civil & Civic Ltd. (1982) 41 A.C.T.R. 1 (site engineer).
61
See Nitrigin Eireann Teoranta v Inco Alloys Ltd. [1992] 1 W.L.R. 498. Also
the Canadian case, A.C.A. Cooperative v Associated Freezers (1992) 93
D.L.R. 559 (engineer) and the Australian case Pantalone v Alaoui (1989) 18
N.S.W.L.R. 119 (engineer). As to problems arising from defects to part of
"complex structure" causing damage to other parts, see D&F Estate Ltd. v
Church Commissioners [1989] 1 A.C. 177 at 207 and 212; Murphy v
19
Brentwood D.C. [1991] 1 A.C. 398 at 470, 478 and 497.
20
(2)
But he may not owe them a duty to take care not to cause them economic loss62 unless
such loss:
(a)
is immediately consequential upon such injury or damage,63 or
(b)
comprises expenditure necessary to rectify a dangerous defect which is a
potential source of injury to person or property on immediately neighbouring
land or the highway;64 or
(c)
is the product of a negligent misrepresentation relied upon by the third parties
within the principle in Hedley Byrne & Co Ltd. v Heller & Partners Ltd.65 66
Containing the loss
62
See Midland Bank v Bardgrove Property Services Ltd. (1990) 24 Con. L.R. 98
(engineers); Hiron v Pynford South Ltd. (1991) 60 Build. L.R. 78 (engineers);
Preston v Torfaen B.C. [1993] C.I.L.L. 864 (C.A.) (engineers). In the context
of unsuccessful claims by contractors against engineers and architects for
allegedly erroneous certificates see Pacific Associates Inc v Baxter [1990] 1
Q.B. 993. (No duty to contractor owed by engineer engaged by building
employer for erroneous certificates. Latter challengeable under arbitration
clause in contract between and employer). This was followed in Hong Kong in
Leon Engineering & Construction Co. Ltd. v Ka Duk Investment Ltd. (1900)
47 Build L.R. 139.
63
See Spartan Steel & Alloys Ltd. v Martin [1973] 1 Q.B. 27.
64
See Murphy v Brentwood D.C. [1991] A.C. 398 at 475 (sed quaere); Morse v
Barratt (Leeds) Ltd. (1993) 9 Con. L.J. 158.
65
[1964] A.C. 465.
66
This may explain the liability in tort of structural engineers in I.B.A. v E.M.I.
and B.I.C.C. (1989) 14 Build. L.R. 1 (H.L.) and District of Surrey v CarrollHatch and Associates (1979) 101 D.L.R. (3d) 218. See also a Canadian case
in which where engineers were held liable to contractors who relied on
misstatements in tender documents: Edgeworth Construction v Lea and Walji
[1993] 66 B.L.R.56 (Canadian Supreme Court); but cf. Auto Concrete Curb
Ltd. v South Nation River Conservation Authority [1993] 3 S.C.R. 201
(Canadian Supreme Court). Also the Malaysian case of Chin Sin Motor Works
v Arosa Development Sdn Bhd [1992] 1 M.L.J. 23 (developer's architect liable
for negligent statements in certificates relied on by claimant purchaser and
financier).
21
The coastline of liability is not one of constant erosion against professionals. It is matched by
accretions in their favour. Common law developments in relation to characterisation of scope
of duty,67 causation, loss of chance,68 contributory negligence, contribution69 and, potentially,
statutory relief70 provide significant succour.
Nevertheless, in the U.K., we still await a judgment in which the interplay of causation,
contributory negligence, contribution and statutory relief is given detailed consideration in
the context of claims against professionals. Antipodean cases relating to accountants and
auditors still provide the main illustrations of such interplay.71
A perennial problem for the courts is to devise an appropriate polity which does not impose
impossibly burdensome and uninsurable potential liability. Frequently detectable in attempts
to allocate loss by causation, contributory negligence and other devices is a striving to give
effect to a principle or concept of proportionality, i.e. a principle that the extent of a
defendant's liability in damages for breach of duty should bear a reasonable relationship to
extent of his error or culpability. Although the pervasive and dominant role of professionals
in modern society enlarges their exposure, the proportionality principle is likely to be a
significant factor in moderating that exposure.
Giving effect to a principle of proportionality
How can effect be given to such a principle of proportionality? There are a number of
alternatives.
There is already an increasing tendency for professionals to seek to limit or define their
liability by appropriate contractual limitation clauses. Already standard forms of engagement
67
Banque Bruxelles Lambert SA v Eagle Star Ins. Co. Ltd. [1997] AC 191.
68
Allied Maples Group Ltd. v Simmons & Simmons [1995] 1 W.L.R. 1602.
(solicitors) J Sainsbury v Broadway Malyan.(1998) 61 Con L.R. 31 (HH
Judge Lloyd Q.C.) (building context); First Interstate Bank of California v
Cohen Arnold. [1996] P.N.L.R. 17 (C.A.) (accountants).
69
Under the Civil Liability (Contribution) Act 1978.
70
See Companies Act 1985, s. 727.
71
AWA Ltd. v Daniels t/a Deloitte Haskins & Sells.(1992) 7 ACSR 759
(Supreme Court of New South Wales, Commercial Division); on appeal, sub
nom. Daniels v Anderson (1995) 16 ACSR 607 (Supreme Court of New South
Wales, Court of Appeal). Also Dairy Containers Ltd. v. NZI Bank Ltd. [1995]
12 N.Z.L.R. 30 and Duke Group Ltd. (in liq.) v Pilmer (1999) 31 ACSR
213 (Supreme Court of South Australia: Full Court.)
22
for architects and engineers incorporate clauses which seek in circumstances where they are
liable along with others to limit their liability to what is their degree of fault relative to those
others. In other words the clauses seek contractually to turn the statutory contribution right as
against other defendants into a partial defence as against the claimant. These clauses remain
to be judicially tested. More conventional limitation clauses limit liability to a particular
amount or a particular ascertainable amount, perhaps related to the amount of available
insurance cover or a multiple of fees.
Quite apart from problems of incorporation in the contract and construction, contractual
limitation clauses are subject to statutory restrictions.72
What of the introduction of "full proportionate liability" i.e. a new statutory regime whereby
the defendants would be liable to claimants only for the amount of damages equal to their
proportionate share (i.e. relative to other defendants or wrongdoers) of the fault in the
claimant's loss. It has recently been rejected in the U.K.73 Proportionate liability regimes of
various kinds have been enacted, however, in several states in Australia and the U.S.A. and in
Ireland.
Limitation
The principles are familiar. Limitation in contract runs from the time of breach and in tort as
from the time the loss or damage first occurred. Determining when loss or damage first
occurred is often dependant on how it is properly to be characterised. The problem is
encountered regularly in a variety of contexts in professional negligence cases, as in others.
Thus an event may cause injury to one person, physical damage to the property of another and
various kinds of financial loss to others, including repair cost and loss of earnings. That
observation demonstrates that the loss or damage must be characterised (1) as between the
relevant claimant and defendant and (2) having regard to (a) the difference between the
claimant's actual position and the position which he would have occupied but for the
defendant's default and (b) the particular nature of the claimant's interest which has been
infringed.
In a building project the problem of characterisation is acute in the case of latent damage.
Thus a building on completion of construction may contain a defect which takes time to
materialise (of it own accord or through interaction with an external factor) and perhaps even
longer to become discoverable. The defect, if not remedied at possibly great expense, may in
the course of time become a source of danger to occupants and other people and even other
property. Its discovery may impact adversely on the value of building . That impact may not
72
e.g. the Unfair Contract Terms Act 1977.
73
Following recommendations made in a paper published by the DTI, the
Feasibility Investigation of Joint and Several Liability, written by the former
Law Commissioner, Professor Andrew Burrows.
23
be on the original owner who may have sold the building before the discovery of the defect
and at a price reflecting its value without the defect, but on the purchaser or later owners.
The issue debated in Pirelli74 was whether, for there to be damage sufficient to trigger the
accrual of a cause of action in the tort of negligence, it was essential that the claimant knew or
reasonably ought to have known of the damage. That question was answered negatively. The
case proceeded on the assumption, held to be wrong in Murphy,75 that the materialisation of a
defect to a product, as distinct from damage caused to other property, was properly to be
characterised as physical damage. Such materialisation was held in Murphy to amount to
economic loss which was recoverable in tort only in limited circumstances.
But assuming that a duty of care to avoid economic loss can be established, when does the
cause of action accrue? In relation to cracks in a building or other structure, is it when the
cracks occur (albeit not discoverable at the time), as held in Pirelli or at the later date when
reasonably discoverable. The latter solution was favoured by the Privy Council in
Invercargill. As indicated by the following passage76 from the Privy Council's opinion in that
case, the contrary decision in Pirelli must now be regarded as at least doubtful and probably
wrong, at least as a matter of English law:
"... the cause of action accrues when the cracks become so bad, or the defects so obvious, that
any reasonable homeowner would call in an expert. Since the defects would then be obvious
to a potential buyer, or his expert, that marks the moment when the market value of the
building is depreciated, and therefore when economic loss occurs. Their Lordships do not
think it is possible to define the moment more accurately. The measure of the loss will then
be the cost of repairs, if it is reasonable to repair or the depreciation in the market value if it
is not: see Ruxley Electronic and Construction Ltd. v Forsyth [1994] 3 All E.R. 801.
The approach avoids all the practical and theoretical difficulties to which academic
commentators have drawn attention, and which led to the rejection of Pirelli by the Supreme
Court of Canada in the Kamloops case. The approach is consistent with the underlying
principle that a cause of action accrues when, but not before, all elements necessary to
support the plaintiff's claim are in existence. For in the case of a latent defect in a building
the element of loss or damage which is necessary to support a claim for economic loss in tort
does not exist so long as the market value of the house is unaffected. Whether or not it is
right to describe an undiscoverable crack as damage, it clearly cannot affect the value of the
building on the market. The existence of such a crack is thus irrelevant to the cause of
action. It follows that the judge applied the right test in law.
74
Pirelli General Cable Works Ltd. v Oscar Faber & Partners [1983] 2 A.C. 1
(an engineer's negligence case)
75
Murphy v Brentwood D.C. [1991] 1 A.C. 398.
76
[1996] 1 All E.R. 756 at 772-3.
24
Their Lordships repeat that their advice on the limitation point is confined to the problem
created by latent defects in buildings. They abstain ... from considering whether the
'reasonable discoverability' test should be of more general application in the law of tort.
It is regrettable that there should be any divergence between English and New Zealand on a
point of fundamental principle. Whether Pirelli should be regarded as good law in England is
not for their Lordships to say. What is clear is that it is not good law in New Zealand."
This approach did not commend itself to the majority in the recent decision of the Hong Kong
Court of Final Appeal in the Bank of East Asia case.77 My perspective of the decision has
been sharpened by my having overlooked the 23 storey building for the best part of a week
and thus deriving an all too apparent appreciation of the effect of slabs of granite cladding
detaching from the upper floors to the main street below. The facts are now familiar. The
claimant bank sued cladding subcontractors and a professional firm of architects and
engineers for the costs of replacing the defective cladding, which was potentially dangerous.
Construction was completed in 1983 and the building occupied, but writs were only issued
against the subcontractors in 1994 and the professional firm in 1996.
There was no contract between the bank and the subcontractors. While there was a contract
with the professional firm, it was accepted that a claim in contract was time barred. The
claim was pursued in tort against both contractors and the professional firm. It was conceded
on behalf of the subcontractors that they owed a duty of care to the claimant. That it was
accepted that the professional firm owed a duty of care in tort concurrent with their
contractual duty of care to their claimant client is unremarkable.
Damage being an ingredient of the tort of negligence, the main issue was when did the bank
first sustain damage or loss consequent upon the alleged negligence, the limitation period
under the relevant Hong Kong enactment being six years from when the cause of action
accrued. That issue raised the critical question of how the damage was properly to be
characterised.
Findlay J. found in favour of the bank, characterising the damage as economic loss
(diminution in value or the cost of reinstatement) which only occurred when the defect
became first known or manifest in 1993, as until then it was not possible to say that the
market value was affected or that the reinstatement cost might be incurred. The Court of
Appeal found against the bank. While it also characterised the damage as economic loss, the
court held that it was sustained in 1983 when the building was completed and paid for and the
bank thereby acted to its detriment.
The Court of Final Appeal also found against the bank, but by a 3:2 majority. Litton P.J.
77
Bank of East Asia Ltd. v. Tsien Wui Marble Factory Ltd. [2000] 1HKC 1.
25
characterised the damage as physical damage and as having occurred in about 1985. He
preferred the analysis in Pirelli to that in Invercargill. Ching P.J. characterised the damage as
economic loss but held that the bank had failed to discharge the burden upon it of establishing
that it had first occurred within the limitation period. In such circumstances the occurrence of
physical damage could be taken as the date of the accrual of the cause of action, which was
outside the limitation period. Nazareth N.P.J essentially agreed with Ching P.J. The two
dissenting judges, Bokhary P.J. and Nicholls N.P.J., followed the Invercargill analysis,
characterising the damage as economic loss and as having occurred when the latent defects
became patent and when they first impacted adversely on the value of the building, which was
within the limitation period.
It is impossible to do justice to the judgments within a few sentences. While I may be
accused of lack of diffidence by expressing a view, I prefer to run that risk rather than being
accused of being an invertebrate by not doing so. I am in the Invercargill camp. I cannot
accept that the relevant loss was physical damage. It was economic loss. Considerable
reliance was placed by Litton P.J. on the reasoning of the House of Lords in Cartledge v. E.
Jopling & Sons Ltd.,78 (followed in Pirelli) in which it was held that a cause of action for
personal injury accrues when the injury occurs and not when it is capable of being discovered
by the claimant. That decision preceded by a year Hedley Byrne v. Heller & Partners Ltd.79
in which the House of Lords first recognised that there could be recovery of “pure” economic
loss in tort. It took even longer for there to be an appreciation that in the case of a defect in a
building, discovery of which produces a fall in its market value, knowledge of the defect is a
prerequisite of that fall and the consequent economic loss.
The real difficulty in the Bank of East Asia case and similar cases is in rationalising why the
relevant economic loss to the original owner consists in the fall in value of the building when
the defect was or ought to have been first discovered, as distinct from payment to the
negligent builder or professional, on completion or earlier, of sums which could have been
withheld on account of the defect. In the case of a building purchased in reliance upon a
negligent valuation or survey, the loss is deemed to occur on purchase. Although in the
relevant cases80 the measure of loss is described as the diminution or difference in value (i.e.
between the price paid and the actual value), the better characterisation is overpayment, i.e.
the loss consists in the excess price paid and not in any unacquired value in the property
purchased.
78
[1963] A.C. 758.
79
[1964] A.C. 465.
80
See Philips v Ward [1956] 1 W.L.R. 471 (C.A.), Perry v Sidney Phillips &
Son [1982] 1 W.L.R. 1297 (C.A.), Watts v Morrow [1991] 1 W.L.R. 1421
(C.A.).
26
A clue to a synthesis is provided by asking the question what harm (as distinct from loss) to
the claimant was it the defendant’s duty to guard against. Focus is thus concentrated on the
nature of the claimant’s particular interest and the importance of the need to make a value
judgment of how the defendant’s particular default impacted on that interest and whether and
how the law should provide redress. Moreover, it brings the evaluation more accurately
within the province of tort law, which is the provision of redress for harm and not loss. It is
perhaps a rather jurisprudential perspective, but still pertinent. The question also prompts due
regard to what La Forest J. said in Winnipeg Condominium Corp. v. Bird Construction Co.81:
“the degree of danger to persons and other property created by the negligent construction of
a building is a cornerstone of the policy analysis that must take place in determining whether
the cost of repair of the building is recoverable in tort.”
The Hong Kong Society of Construction Law
I gather that this is still an embryonic society. From the interest shown it seems that it will
not be long in gestation and will be as active as its U.K. equivalent. As Societies of
Construction Law have proliferated throughout Europe, so also I expect them to proliferate in
Asia and throughout this country, China. One final plea. Do not limit your view to
construction law. The application of the law in other contexts has considerable relevance.
The development of new technologies and the emergence of new specialities will doubtless
bring new horizons of analogy and new territories for the testing of familiar concepts.
John L. Powell Q.C.82
March 2000
4 New Square,
Lincoln's Inn,
London WC2A 3RJ
Tel: +44 (0)20 7822 2000
Fax: +44 (0)20 7822 2001
e-mail: barristers@4newsquare.com
81
(1995) 121 D.L.R. (4th) 193 (Supreme Court of Canada).
82
Co-author, Jackson & Powell on Professional Negligence; Lomnicka & Powell
Encyclopedia of Financial Services Law; President, U.K. Society of
Construction Law 1991-3; Chairman, Law Reform Committee, Bar Council of
England & Wales 1997-98.
27
28