Go back to square one

I am sorry to go on about it, but this business about suing for pure economic loss in the law of tort is really annoying me. The judges do not seem to know if they are coming or going.

Are those who design buildings responsible to future owners for damages just because a building is worth less or needs remedial work because of a defect, even though there has been no physical damage to people or property?

Are contractors to be treated the same way, or do they have a lesser liability? When does the limitation period for bringing claims begin and end? All of these uncertainties have come up in court over the past few months.

I’m glad I’m not Australian. Their judges seem to be even more lost when asked to decide the liability of those who design or construct defective buildings. Last year, the High Court of Australia had to look at a case very similar to the Mirant Asia vs Ove Arup case, on which Ann Minogue and I have commented (see, for example, 4 February, page 49).

The defendant in Woolcock vs CDG was an engineer that, like Arup, had designed foundations. The commercial warehouse in question was built in 1987 and sold on by the original client in 1992. In 1994 it was discovered that, because of settlement of the foundations, remedial works were needed and in the meantime the property was devalued. There was no threat of a collapse or damage to other property, meaning the loss in question was categorised in Australian law, as it would be in English law, as pure economic loss.

The new owner sued the engineer for damages and relied on the previous Australian case of Bryan vs Maloney. In that case, instead of fussing like the British judges about whether the person at fault was a contractor or a consultant, the judge made up another distinction. Because the building was a dwelling, he held the builder liable to a future owner even where the damages claimed by that owner were pure economic loss.

He appeared to have good consumer motives in mind, pointing out that the purchase of a house is the largest single investment most people will make in their life. Not being construction experts, they are vulnerable to the risk of building defects. The law should protect them against defects by allowing them to sue for damages even when their loss is purely financial.

A new law could say who can be held responsible and for how long after the building has been finished

The claimant in Woolcock argued that the same rule should apply to a commercial building so that it could recover damages from the negligent engineer. The judges said no. They each had slightly different reasons, but overall they did not like the extent of the legal liabilities that could be created by pursuing the line of thought in the Bryan case. Either the judgment in that case was wrong, or it should apply only to dwellings and not to commercial premises.

So, at the same time as English judges in the Arup case are saying there should be greater liability on consultants in relation to defective buildings, the Australian judges are heading the opposite way. Actually, this may be a good thing. Trying to create a distinction between dwellings and other premises is fraught with difficulties. Which side of the line is a building comprising shops with flats above? Or a live–work studio?

As Ann has said before, it is time for the Law Commission to look at this. It might find that we should take the decision-making away from the judges (they have hardly covered themselves in glory) and create a new statutory law to dictate the liability of those who design and construct defective buildings.

Since 1972, the Defective Premises Act has held those involved in the construction of dwellings responsible for ensuring they are fit for habitation. A new, more general, law could say who can be held responsible, for how long after the building has been finished and for what categories of loss (for example, picking up the cost of remedial works but not consequential losses such as rental income). That would all be much clearer – as long as they draft the new law correctly …

Patrick Holmes is a partner in solicitor Macfarlanes