The law of negligence underpins the legal system. It is therefore just a teeny bit disturbing that the courts can’t seem to decide what it says or who it applies to
Whoever left that snail in the bottle of ginger beer back in the early 1930s has a lot to answer for. Donoghue vs Stevenson, the case that followed, marked the beginning the modern law of negligence: claims in tort (rather than for breach of contract) where negligence leads to somebody suffering harm or incurring a loss. Even now, 70 years on, the courts cannot decide the extent of this law.
There are some easy bits. If you negligently design or construct a building and as a result it causes death or personal injury or causes damage to other property you can be liable for those losses under the law of tort. But what if the building is designed or constructed negligently but is not about to cause injury or other damage? The building is simply worth less as a result of the failure. The law calls this “pure economic loss” and what a muddle it creates.
Let’s start with the builder. In 1980 the court said it was liable in tort for pure economic loss and in 1983 it decided that its subcontractors were as well. But in 1988 it was not, which probably remains the case.
What about the designers: the architects and engineers? These are professional people, not mere contractors, so the story goes, and as a result they have tended to owe wider ranging duties in the law of tort. It is not entirely clear but quite possibly they stopped being liable for pure economic loss at the same time as the builder in 1988, but by 1996 they were back in the frame again. Then in 2002 the courts said everyone in construction is to be treated the same. No liability for pure economic loss whether you are a contractor or a designer.
Finally, in 2004, the courts said precisely the opposite. In Mirant Asia Pacific Construction vs Ove Arup & Partners International Ltd, Arup was found liable in tort for pure economic loss cause by the negligent performance of design duties.
Is this right? The design process is undertaken as much by contractors as by consultants these days and it seems to be an artificial distinction to treat the two differently.
Take a project procured under a design-and-build contract where the designers are initially engaged by the client but then novated to the contractor in return for the contractor assuming responsibility for the entire design and construction of the project.
I fear that whatever the courts say now they may well say something different in 2007
Following the Mirant case, could it really be that once novated the engineer could be liable in tort whereas the contractor, because it is a contractor, is not? This would be odd.
I see two reasons why the engineer should not to be worse off than the contractor. First, there is a case from 1996 where the court found that a contractor could be liable in tort for pure economic loss and that no distinction should be drawn between the liability of an independent designer and that of a builder designer. But that would be contrary to the 2002 decision saying that nobody, be they designer or contractor, has liability for pure economic loss in tort. Second, the novated engineer might argue that whatever the liability of the design-and-build contractor, because it has agreed to be novated it is clear it is not responsible to the client, and therefore a duty of care in tort should not be imposed.
Would this second argument stand where the claim relates to a pre-novation service? In the Mirant case, part of the alleged failing by Arup was in not verifying certain assumptions on which its design of the foundations for the project was based. At that time it was working directly for the client. If it were subsequently novated to a contractor should this remove its liability for the pre-novation service? Then again, since the novation usually pretends that the engineer had been working for the contractor from the outset, would it be fair to impose a continuing responsibility to others in respect of the pre-novation services?
I do not know the answer, but I fear that whatever the courts say now, they may well say something different in 2007 and something new again in 2008. Quite how they expect us to undertake any sensible business of risk management is beyond me, but I don’t make the law I just have to guess what it is.
Patrick Holmes is a partner in solicitor Macfarlanes