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Cite as: [1982] UKHL 4

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    Parliamentary Archives,
    HL/PO/JU/18/242

    Junior Books Limited (Respondents)

    v.

    Veitchi Company Limited (Appellants)
    (Scotland)

    JUDGMENT

    Die Jovis 15° Julii 1982

    Upon Report from the Appellate Committee to whom was
    referred the Cause Junior Books Limited against Veitchi
    Company Limited, That the Committee had heard Counsel as
    well on Tuesday the 20th as on Wednesday the 21st,
    Thursday the 22nd and Thursday the 29th days of April last
    upon the Petition and Appeal of The Veitchi Company
    Limited, 15 Bouverie Street, Rutherglen, Glasgow praying
    that the matter of the Interlocutor set forth in the
    Schedule thereto, namely an Interlocutor of the Lords of
    Session in Scotland of the Second Division of the 1st day
    of September 1980 so far as therein stated to be appealed
    against might be reviewed before Her Majesty the Queen in
    Her Court of Parliament and that the said Interlocutor so
    far as aforesaid might be reversed, varied or altered or
    that the Petitioners might have such other relief in the
    premises as to Her Majesty the Queen in Her Court of
    Parliament might seem meet; as also upon the Case of
    Junior Books Limited lodged in answer to the said Appeal;
    and due consideration had this day of what was offered on
    either side in this Cause:

    It is Ordered and Adjudged, by the Lords Spiritual
    and Temporal in the Court of Parliament of Her Majesty the
    Queen assembled, That the said Interlocutor of the 1st day
    of September 1980 in part complained of in the said Appeal
    be, and the same is hereby. Affirmed and that the said
    Petition and Appeal be, and the same is hereby, dismissed
    this House: And it is further Ordered, That the



    Cler: Parliamentor :



    Appellants do pay or cause to be paid to the said
    Respondents the Costs incurred by them in respect of the
    said Appeal, the amount thereof to be certified by the
    Clerk of the Parliaments unless agreed between the
    parties: And it is also further Ordered, That unless the
    Costs certified as aforesaid shall be paid to the
    Respondents entitled to the same within one calendar month
    from the date of the Certificate thereof the Cause shall
    be, and the same is hereby, remitted back to the Court of
    Session in Scotland or to the Judge acting as Vacation
    Judge to issue such Summary Process or Diligence for the
    recovery of such Costs as shall be lawful and necessary.


    HOUSE OF LORDS

    JUNIOR BOOKS LIMITED (RESPONDENTS)

    v.

    VEITCHI COMPANY LIMITED (APPELLANTS)
    (SCOTLAND)

    Lord Fraser of Tullybelton
    Lord Russell of Killowen
    Lord Keith of Kinkel
    Lord Roskill
    Lord Brandon of Oakbrook


    Lord Eraser of Tullybelton

    my lords,

    I have had the advantage of reading in draft the speech of my noble and
    learned friend, Lord Roskill, and I am in full agreement with his conclusion
    and with the reasons on which he bases it. I also gratefully adopt his
    summary of the facts. It is enough for me to say that the appellants
    (defenders) are specialist sub-contractors who laid composition flooring in
    a factory that was built for the respondents (pursuers) at Grangemouth
    between September 1969 and May 1970. The respondents aver that the
    floor is defective, owing to failure by the appellants to take reasonable
    care in laying it, and that it will have to be replaced. There was no
    contractual relationship between the appellants and the respondents, and
    for some reason that has not been explained the respondents have not
    taken legal proceedings against the main contractors with whom they did
    have a contractual relationship. The respondents have raised this action
    against the appellants, claiming damages which consist mainly of the
    direct and indirect cost of replacing the floor, the action being founded
    on averments that the appellants were negligent in laying the floor. At
    the present stage of relevancy these averments must be taken as true. The
    appeal raises an important question on the law of delict or, strictly speaking,
    quasi delict, which is not precisely covered by authority. The question is
    whether the appellants having (as must at this stage be assumed) negligently
    laid a floor which is defective, but which has not caused danger to the
    health or safety of any person nor risk of damage to any other property
    belonging to the owner of the floor, may in the circumstances averred by
    the respondents be liable for the economic loss caused to them by having
    to replace the floor.

    The Lord Ordinary (Lord Grieve) and the Second Division answered
    that question in the affirmative, and they have allowed to the respondents
    a proof before answer. The appellants maintain that the question should
    be answered in the negative and that the action should be dismissed as
    irrelevant. As I agree with my noble and learned friend, Lord Roskill,
    that the appeal fails I only add to his speech in order to deal in my own
    words with two important matters that arise.

    The first is the concern which has been repeatedly expressed by judges
    in the United Kingdom and elsewhere, that the effect of relaxing strict
    limitations upon the area of liability for delict (tort) would be, in the
    words of Cardozo J. to introduce " liability in an indeterminate amount
    " for an indeterminate time to an indeterminate class ". This is the flood-
    gates argument, if I may use the expression as a convenient description,
    and not in any dismissive or question-begging sense. The argument appears
    to me unattractive, especially if it leads, as I think it would in this case,
    to drawing an arbitrary and illogical line just because a line has to be
    drawn somewhere. But it has to be considered, because it has had a
    significant influence in leading judges to reject claims for economic loss
    which were not consequent upon physical danger to persons or other
    property of the pursuer/plaintiff. It was the main reason for rejecting the
    claim in the Scottish case of Dynamco Ltd. v. Holland & Hannen & Cubitts
    {Scotland) Ltd.
    1971 SC 257, which has recently been followed with some
    apparent reluctance by the Lord Ordinary (Lord Maxwell) in Wimpey
    Construction (U.K.) Ltd.
    v. Martin Black & Co. 1982 S.L.T. 239. The

    2

    floodgates argument was much discussed by the High Court of Australia
    in Caltex Oil (Australia) Pty. Ltd v. The Dredge " Willemstad " (1976) 136
    C.L.R. 529, where the majority of the court held that there was sufficient
    proximity between the parties to justify a claim for economic loss because
    the defendant knew (in the words of the headnote) " that a particular
    " person, not merely as a member of an unascertained class, [would] be
    " likely to suffer economic loss as a consequence of his negligence".
    Whether the defenders' knowledge of the identity of the person likely to
    suffer from his negligence is relevant for the present purpose may with
    respect be doubted and it seems to be contrary to the views expressed in
    Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 by
    Lord Reid at 482 and by Lord Morris of Borth-y-Gest at 494. But it is
    not necessary to decide the question in this appeal because the appellants
    certainly knew, or had the means of knowing, the identity of the respon-
    dents for whom the factory was being built. So if knowledge of the
    respondents' identity is a relevant test, it is one that the appellants can
    satisfy. They can also satisfy most, if not all, of the other tests that have
    been suggested as safeguards against opening the floodgates. The proximity
    between the parties is extremely close, falling only just short of a direct
    contractual relationship. The injury to the respondents was a direct and
    foreseeable result of negligence by the appellants. The respondents, or
    their architects, nominated the appellants as specialist sub-contractors and
    they must therefore have relied upon their skill and knowledge. It would
    surely be wrong to exclude from probation a claim which is so strongly
    based, merely because of anxiety about the possible effect of the decision
    upon other cases where the proximity may be less strong. If and when
    such other cases arise they will have to be decided by applying sound
    principles to their particular facts. The present case seems to me to fall
    well within limits already recognised in principle for this type of claim,
    and I would decide this appeal strictly on its own facts. I rely particularly
    on the very close proximity between the parties which in my view disting-
    uishes this case from the case of producers of goods to be offered for sale
    to the public.

    The second matter which might be thought to justify rejecting the
    respondents' claim as irrelevant is the difficulty of ascertaining the standard
    of duty owed by the appellants to the respondents. A manufacturer's duty
    to take care not to make a product that is dangerous sets a standard which
    is, in principle, easy to ascertain. The duty is owed to all who are his
    " neighbours". It is imposed upon him by the general law and is in
    addition to his contractual duties to other parties to the contract. It cannot
    be discharged or escaped by pleading that it conflicts with his contractual
    duty. But a duty not to produce a defective article sets a standard which
    is less easily ascertained, because it has to be judged largely by reference
    to the contract. As Windeyer J. said in Voli v. Inglewood Shire Council
    (1963) 110 C.L.R. 74, 85 if an architect undertakes "to design a stage
    " to bear only some specified weight, he would not be liable for the
    " consequences of someone thereafter negligently permitting a greater weight
    to be put upon it." Similarly a building constructed in fulfilment of a
    contract for a price of £100,000 might justly be regarded as defective,
    although the same building constructed in fulfilment of a contract for a
    price of £50,000 might not. Where a building is erected under a contract
    with a purchaser, then provided the building, or part of it, is not dangerous
    to persons or to other property and subject to the law against misrepresenta-
    tion, I see no reason why the builder should not be free to make with the
    purchaser whatever contractual arrangements about the quality of the
    product the purchaser wishes. However jerry-built the product, the
    purchaser would not be entitled to damages from the builder if it came
    up to the contractual standard. I do not think a subsequent owner could
    be in any better position, but in most cases he would not know the details
    of the contractual arrangements and, without such knowledge, he might
    well be unable to judge whether the product was defective or not. But in
    this case the respondents, although not a party to the contract with the
    appellants, had full knowledge of the appellants' contractual duties, and

    3

    this difficulty does not arise. What the position might have been if the
    action had been brought by a subsequent owner is a matter which does
    not have to be decided now.

    For the reasons given by my noble and learned friend, Lord Roskill, and
    for the additional reasons which I have stated, I would dismiss this appeal.

    Lord Russell of Killowen

    my lords,

    I have had the advantage of reading in draft the speeches prepared
    by my noble and learned friends. Lords Fraser of Tullybelton and Roskill.
    I agree with them and with their conclusion that this appeal fails. In my
    respectful opinion the view of my noble and learned friend. Lord Brandon
    of Oakbrook, unnecessarily confines the relevant principles of delict to
    exclude cases of such immediate proximity as the present.

    Lord Keith of Kinkel

    my lords,

    The respondents own and occupy a factory in Grangemouth. This factory
    was constructed for them over a period in 1969 and 1970, under a contract
    between them and a company called Ogilvie (Builders) Ltd. which I shall
    call " the main contractors ". The respondents' architects nominated the
    appellants as specialist sub-contractors for the purpose of laying a floor in
    the main production area of the factory. The appellants entered into a
    contract with the main contractors for the carrying out of this work.

    According to the respondents' averments the appellants' workmanship was
    seriously defective in a number of respects, with the result that after two
    years the floor began to develop cracks over the whole of its surface. They
    say that it requires replacement in order to avoid the necessity for continual
    maintenance, which would be more expensive in the long run. They claim
    against the appellants for the cost of such replacement, together with certain
    consequential loss which they say they will suffer while the work of
    replacement is being carried out. The claim is founded in delict, the
    respondents pleading that they have suffered loss through the appellants'
    negligence and are entitled to reparation therefor.

    The appellants plead that the respondents' averments are irrelevant. The
    Lord Ordinary (Lord Grieve) after debate, refused to sustain this plea and
    allowed a proof before answer. The Second Division (Lord Justice Clerk
    Wheatley, Lord Kissen and Lord Robertson) refused a reclaiming motion
    against the Lord Ordinary's interlocutor. The appellants now appeal to
    your Lordships' House.

    It is a notable feature of the respondents' pleadings that they contain
    no averment that the defective nature of flooring has led or is likely to lead
    to any danger of physical injury to work people or of damage to property,
    moveable or immoveable, other than the floor surface itself, or even of
    economic loss through interruption of production processes. The only type
    of pecuniary consequential loss claimed for is that arising out of the need
    to replace the flooring. Had there been an averment of any such
    apprehended danger, I am of opinion that the respondents' case would have
    been clearly relevant. There undoubtedly existed between the appellants
    and the respondents such proximity of relationship, within the well-known
    principle of Donoghue v. Stevenson [19321 A.C. 562, as to give rise to duty
    of care owed by the former to the latter. As formulated in Donoghue v.
    Stevenson, the duty extended to the avoidance of acts or omissions which
    might reasonably have been anticipated as likely to cause physical injury
    to persons or property. The scope of the duty has, however, been developed
    so as to cover the situation where pure economic loss is to be foreseen as

    4

    likely to be suffered by one standing in the requisite degree of proximity:
    Hedley Byrne & Co. Ltd v. Heller & Partners Ltd [1964] AC 465. That
    case was concerned with a negligent statement made in response to an
    inquiry about the financial standing of a particular company, in reliance on
    the accuracy of which the plaintiffs had acted to their detriment. So the
    case is not in point here except in so far as it established that reasonable
    anticipation of physical injury to person or property is not a sine qua non
    for the existence of a duty of care. It has also been established that where
    a duty of care exists through the presence of such reasonable anticipation,
    and it is breached, then even though no such injury has actually been caused
    because the person to whom the duty is owed has incurred expenditure in
    averting the danger, that person is entitled to damages measured by the
    amount of that expenditure: Anns v. Merton London Borough Council
    [1968] A.C. 728, per Lord Wilberforce at p.759. That is the principle which
    in my view underlies Dutton v. Bognor Regis U.D.C. [1972] 1 Q.B. 373 and
    Batty v. Metropolitan Realisations Ltd [1978] 1 Q.B. 554. So in the present
    case I am of opinion that the appellants in the laying of the floor owed to
    the respondents a duty to take reasonable care to avoid acts or omissions
    which they ought to have known would be likely to cause the respondents,
    not only physical damage to person or property, but also pure economic loss.
    Economic loss would be caused to the respondents if the condition of the
    floor, in the course of its normal life, came to be such as to prevent the
    respondents from carrying out ordinary production processes on it, or,
    short of that, to cause the production process to be more costly than it
    would otherwise have been. In that situation the respondents would have
    been entitled to recover from the appellants expenditure incurred in relaying
    the floor so as to avert or mitigate their loss. The real question in the
    appeal, as I see it, is whether the respondents' averments reveal such a
    state of affairs as, under the principles I have outlined, gives them a complete
    right of action. I am of opinion that they have relevantly averred a duty
    of care owed to them by the appellants, though I think their averments in
    this respect might have been more precise and better related to the true
    legal position. It is the averments of loss which cause me some trouble.
    On the face of it, their averments might be read as meaning no more than
    that the respondents have got a bad floor instead of a good one and that
    their loss is represented by the cost of replacing the floor. But they do also
    aver that the cost of maintaining the floor which they have got is heavy,
    and that it would be cheaper to take up the floor surface and lay a new one.
    If the cost of maintaining the defective floor is substantially greater than it
    would have been in respect of a sound one, it must necessarily follow that
    their manufacturing operations are being carried on at a less profitable level
    than would otherwise have been the case, and that they are therefore
    suffering economic loss. That is the sort of loss which the appellants,
    standing in the relationship to the respondents which they did, ought
    reasonably to have anticipated as likely to occur if their workmanship was
    faulty. They must have been aware of the nature of the respondents'
    business, the purpose for which the floor was required, and the part it was
    to play in their operations. The appellants accordingly owed the
    respondents a duty to take reasonable care to see that their workmanship
    was not faulty, and are liable for the foreseeable consequences, sounding in
    economic loss, of their failure to do so. These consequences may properly
    be held to include less profitable operation due to the heavy cost of
    maintenance. In so far as the respondents, in order to avert or mitigate
    such loss, incur expenditure on relaying the floor surface, that expenditure
    becomes the measure of the appellants' liability. Upon that analysis of
    the situation, I am of opinion that the respondents have stated a proper
    case for inquiry into the facts, and that the Lord Ordinary and the Second
    Division were therefore right to allow a proof before answer. I would
    accordingly dismiss the appeal.

    Having thus reached a conclusion in favour of the respondents upon the
    somewhat narrow ground which I have indicated. I do not consider this to
    be an appropriate case for seeking to advance the frontiers of the law of
    negligence upon the lines favoured by certain of your Lordships. There are

    5

    a number of reasons why such an extension would, in my view, be wrong
    in principle. In the first place, I am unable to regard the deterioration of
    the flooring which is alleged in this case as being damage to the respondents'
    property such as to give rise to a liability falling directly within the
    principle of Donoghue v. Stevenson (supra). The flooring had an inherent
    defect in it from the start. The appellants did not, in any sense consistent
    with the ordinary use of language or contemplated by the majority in
    Donoghue v. Stevenson, damage the respondents' property. They supplied
    them with a defective floor. Such an act can, in accordance with the views
    I have expressed above, give rise to liability in negligence in certain
    circumstances. But it does not do so merely because the flooring is defective
    or valueless or useless and requires to be replaced. So to hold would raise
    very difficult and delicate issues of principle having a wide potential
    application. I think it would necessarily follow that any manufacturer of
    products would become liable to the ultimate purchaser if the product,
    owing to negligence in manufacture was, without being harmful in any way
    useless or worthless or defective in quality so that the purchaser wasted
    the money he spent on it. One instance mentioned in argument and
    adverted to by Stamp L.J. in Dutton v. Bognor Regis U.D.C. (supra) at
    p.415, was a product purchased as ginger beer which turned out to be only
    water, and many others may be figured. To introduce a general liability
    covering such situations would be disruptive of commercial practice, under
    which manufacturers of products commonly provide the ultimate purchaser
    with limited guarantees usually undertaking only to replace parts exhibiting
    defective workmanship and excluding any consequential loss. There being
    no contractual relationship between manufacturer and ultimate consumer,
    no room would exist, if the suggested principle were accepted, for limiting
    the manufacturer's liability. The policy considerations which would be
    involved in introducing such a state of affairs appear to me to be such as a
    court of law cannot properly assess, and the question whether or not it
    would be in the interests of commerce and the public generally is, in my
    view, much better left for the legislature. The purchaser of a defective
    product normally can proceed for breech of contract against the seller who
    can bring his own supplier into the proceedings by third party procedure,
    so it cannot be said that the present state of the law is unsatisfactory from
    the point of view of available remedies. I refer to Young & Marten Ltd v.
    McManus Childs Ltd [1969] 1 A.C. 454. In the second place, I can foresee
    that very considerable difficulties might arise in assessing the standards of
    quality by which the allegedly defective product is to be judged. This
    aspect is more fully developed in the speech to be delivered by my noble
    and learned friend Lord Brandon of Oakbrook with whose views on the
    matter I respectfully agree.

    My Lords, for the reasons which I have given I would concur in the
    dismissal of the appeal.

    Lord Roskill

    my lords,

    This appeal against an interlocutor of the Second Division of the Court of
    Session (the Lord Justice Clerk, Lord Kissen and Lord Robertson) dated
    1st September 1980 refusing a reclaiming motion against an interlocutor of
    the Lord Ordinary (Lord Grieve) dated 22nd November 1979 raises a
    question of fundamental importance in the law of delict. Since it was
    accepted in the courts below and in argument before your Lordships' House
    that there was no relevant difference between the Scots law of delict and the
    English law of negligence, it follows that this appeal equally raises a
    question of fundamental importance in the development of the latter law.
    The defenders, the appellants before your Lordships' House, tabled a
    general plea to the relevance of the pursuer's averments and it was that
    plea which was debated in both courts below. The appellants contended

    6

    that there was no averment in the pursuers' pleadings relevant to found an
    action against the defenders in delict and that therefore the action should
    be dismissed as irrelevant. The respondents, on the other hand, contended
    that proof before answer should be allowed. Both courts below allowed
    proof before answer. The learned Lord Ordinary started his opinion by
    stating that there was no Scottish authority directly in point and while in
    argument before your Lordships' House much Scottish, English and indeed
    Commonwealth authority was cited, it remains the fact that no decision
    in any court that was cited to your Lordships conclusively shows the correct
    route to be taken, though many may be said greatly to illuminate that route.

    My Lords, since the appeal comes before your Lordships' House in the
    manner I have just stated, it follows that the respondents' averments, alleged
    not to state a relevant case, must be assumed for present purposes to be
    correct. Those averments are fully set out in the record and in the opinion
    of the Lord Ordinary and to avoid repetition, I gratefully borrow his
    statement of them. I need only summarise the bare essentials. The appellants
    are specialist contractors in the laying of flooring. They were nominated
    sub-contractors under a main building contract concluded between the
    respondents and some main contractors. There was no privity of contract
    between the appellants and the respondents. The appellants laid flooring in
    the production area of a factory which was being built for the respondents
    at Grangemouth as long ago as 1969 and 1970. In 1972 it is averred that
    that flooring showed defects allegedly due either to bad workmanship or bad
    materials or both. At the time the pleadings were prepared no repair work
    had been carried out but it was averred that the cost of repairs would be
    some £50,000 to which added certain figures which, as the Lord Ordinary
    said, might reasonably be described as items of economic or financial loss.
    The total sum claimed by the respondents was over £200,000.

    My Lords, your Lordships are thus invited to deal with events which
    happened long ago. It is difficult to believe that in the intervening period
    some work has not been done to this flooring but no information was
    vouchsafed as to the course of subsequent events. The main building
    contract was not exhibited in the courts below. Your Lordships were not
    told whether that contract included as between the main contractors and the
    respondents any relevant exceptions clause, nor whether if there were such
    an exceptions clause it might be available for the benefit of the appellants.
    Nor were your Lordships told why the respondents had chosen to proceed
    in delict against the appellants rather than against the main contractors in
    contract, nor indeed why the main contractors had not been joined as parties
    to these proceedings. This economy of fact is in stark contrast to the wealth
    of citation of authority of which your Lordships have had the benefit. Thus
    the bare point of law has to be decided upon an assumption of the truth
    of the facts pleaded. But I cannot but suspect that the truth regarding the
    supposed deficiencies of this flooring at Grangemouth has long since been
    either established or disproved. Of those matters however your Lordships
    know and have been told nothing. Half a century ago your Lordships'
    House decided Donoghue v. Stevenson [1932] AC 562 upon a similar plea of
    irrelevancy. In that case however some three and three quarter years only
    had elapsed between the purchase of the allegedly offending bottle of ginger
    beer and the decision of your Lordships' House.

    My Lords, there was much discussion before your Lordships' House as to
    the effect of the pleadings. I see no need to discuss them in detail. They
    seem to me clearly to contain no allegation that the flooring was in a
    dangerous state or that its condition was such as to cause danger to life or
    limb or to other property of other persons or that repairs were urgently or
    imminently required to avoid any such danger, or that any economic or
    financial loss had been, or would be, suffered save as would be consequential
    upon the ultimate replacement of the flooring, the necessity of which was
    averred in Condescendence VII. The essential feature of the respondents
    pleading was that it advanced a claim for the cost of remedying the alleged
    defects in the flooring itself by replacement together with resulting or
    economic or financial loss consequential upon that replacement.


    7

    My Lords, it was because of that scope of the respondents' pleading and
    that that pleading was limited in this way that the appellants were able to
    mount their main attack upon those pleadings and to contend that they were,
    at least in the absence of amendment, for which no leave has been sought at
    any stage, irrelevant since the law neither of Scotland nor of England made
    the appellants liable in delict or in negligence for the cost of replacing this
    flooring or for the economic or financial loss consequent upon that
    replacement. It was strenuously argued for the appellants that for your
    Lordships' House now to hold that in those circumstances which I have
    just outlined the appellants were liable to the respondents would be to extend
    the duty of care owed by a manufacturer and others, to whom the principles
    first enunciated in Donoghue v. Stevenson have since been extended during
    the last half century, far beyond the limits to which the courts have hitherto
    extended them. The familiar " floodgates" argument was once again
    brought fully into play. My Lords, although it cannot be denied that policy
    considerations have from time to time been allowed to play their part in the
    last century and the present either in limiting or in extending the scope of the
    tort of negligence since it first developed as it were in its own right in the
    course of the last century, yet today I think its scope is best determined by
    considerations of principle rather than of policy. The " floodgates"
    argument is very familiar. It still may on occasion have its proper place but
    if principle suggests that the law should develop along a particular route and
    if the adoption of that particular route will accord a remedy where that
    remedy has hitherto been denied, I see no reason why, if it be just that the
    law should henceforth accord that remedy, that remedy should be denied
    simply because it will, in consequence of this particular development become
    available to many rather than to few.

    My Lords, I think there is no doubt that Donoghue v. Stevenson by its
    insistence upon proximity, in the sense in which Lord Atkin used that word,
    as the foundation of the duty of care which was there enunciated, marked a
    great development in the law of delict and of negligence alike. In passing
    it should be noted that Lord Atkin emphasised at page 579 of the report that
    the laws of Scotland and of England were in that case, as is agreed in the
    present, identical. But that advance having been thus made in 1932, the
    doctrine then enunciated was at first confined by judicial decision within
    relatively narrow limits. The gradual development of the law will be found
    discussed by the learned editor of Salmond on Torts (18th edition 1981) at
    pages 289 et seq. Though initially there is no doubt that because of Lord
    Atkin's phraseology at page 599 of the report in Donoghue v. Stevenson,
    " Injury to the consumer's life or property " it was thought that the duty of
    care did not extend beyond avoiding physical injury or physical damage
    to the person or the property of the person to whom the duty of care was
    owed, that limitation has long since ceased as Professor Heuston points out
    in the passage to which I have just referred.

    My Lords, in discussion upon the later developments of the law the
    decision of your Lordships' House (albeit by a majority) in Morrison
    Steamship Co.
    v. Greystoke Castle (Cargo Owners) [1947] A.C. 265, is
    sometimes overlooked. The facts were essentially simple. Two ships
    collided. For simplicity I will call them A and B. Both ships were to blame
    albeit in unequal proportions. The owners of the cargo on ship A became
    liable to contribution in general average to the owners of ship A. The cargo
    owners then sued ship B to recover the relevant proportion of that liability
    for general average contribution. They succeeded in that claim. My Lords.
    I shall not quote extensively from the speeches of either the majority or of the
    minority. Suffice it to say that here the recovery of economic loss was
    allowed and I do not think that the decision is to be explained simply upon
    some supposed esoteric mystery appertaining to the law regarding general
    average contribution. It is true that there seems to be little discussion in the
    speeches regarding the extent of the duty of care but the very rejection by
    the majority of the views expressed by Lord Simonds in his dissenting speech
    that " nothing would justify me in holding that the cargo owner can recover
    " damages from the wrong doing ship not because his cargo has suffered

    8

    " damage but because he has been placed under an obligation to make a
    " general average contribution " (see page 307) shows that Lord Simonds
    at least was appreciating the consequences of the step forward which the
    majority were then taking. The decision is indeed far from the previously
    limited application of the doctrine enunciated in Donoghue v. Stevenson.

    Fifteen years later in Hedley Byrne & Co. Ltd v. Heller & Partners Ltd
    (1964) AC 465, your Lordships' House made plain that the duty of care
    was not limited in the manner for which the respondents in that appeal had
    contended. Your Lordships' House held without doubt the economic loss
    was recoverable without physical damage having been suffered provided that
    the relevant duty of care had existed and that that duty existed when the
    party to whom the allegedly negligent advice was given, relied upon the
    " judgment" or " skill " (I take those two words from the speech of Lord
    Morris of Borth-y-Gest at page 503) of him who gave the advice. I draw
    attention without citation to a passage of Lord Hodson at page 509 where
    he refers to the Greystoke Castle case. Two passages in the speech of Lord
    Devlin at page 529 however demand quotation in full. The noble and learned
    Lord said this:

    " I have had the advantage of reading all the opinions prepared by
    " your Lordships and of studying the terms which your Lordships have
    " framed by way of definition of the sort of relationship which gives
    " rise to a responsibility towards those who act upon information or
    " advice and so creates a duty of care towards them. I do not under-
    " stand any of your Lordships to hold that it is a responsibility imposed
    " by law upon certain types of persons or in certain sorts of situations.
    " It is a responsibility that is voluntarily accepted or undertaken, either
    " generally where a general relationship, such as that of solicitor and
    " client or banker and customer, is created, or specifically in relation
    " to a particular transaction ..."

    Later at page 530 Lord Devlin said:

    " I shall therefore content myself with the proposition that wherever
    " there is a relationship equivalent to contract, there is a duty of care.
    " Such a relationship may be either general or particular. ... I
    " regard this proposition as an application of the general conception
    " of proximity. Cases may arise in the future in which a new and
    " wider proposition, quite independent of any notion of contract, will
    " be needed. There may, for example, be cases in which a statement
    " is not supplied for the use of any particular person, any more than
    " in Donoghue v. Stevenson the ginger beer was supplied for consump-
    " tion by any particular person; and it will then be necessary to return
    " to the general conception of proximity and to see whether there can
    " be evolved from it, as was done in Donoghue v. Stevenson, a specific
    " proposition to fit the case. ..."

    My Lords, it was, as I think, this development of the law which led
    Lord Reid in Dorset Yacht Co. Ltd. v. Home Office [1970] AC 1004 at
    pages 1026/7 to say:

    " In later years there has been a steady trend towards regarding the
    " law of negligence as depending on principle so that, when a new
    " point emerges, one should ask not whether it is covered by authority
    " but whether recognised principles apply to it. Donoghue v. Stevenson
    " may be regarded as a milestone, and the well-known passage in
    " Lord Atkin's speech should I think be regarded as a statement of
    " principle. It is not to be treated as if it were a statutory definition.
    " It will require qualification in new circumstances. But I think that
    " the time has come when we can and should say that it ought to
    " apply unless there is some justification or vital explanation for its
    " exclusion. . . . But where negligence is involved the tendency has
    " been to apply principles analogous to those stated by Lord Atkin.


    9

    Similarly in Anns v. Merton London Borough Council [1978] A.C. 728,
    Lord Wilberforce approving the earlier decisions of the Court of Appeal
    in Dutton v. Bognor Regis Urban District Council [1972] 1 Q.B. 373 and
    Sparham-Souter v. Town and Country Developments (Essex) Ltd. [1976]
    Q.B. 858, said of the trilogy of cases, Donoghue v. Stevenson, Hedley Byrne,
    and Dorset Yacht at pages 751/2:

    "... the position has now been reached that in order to establish that
    " a duty of care arises in a particular situation, it is not necessary to
    " bring the facts of that situation within those of previous situations
    " in which a duty of care has been held to exist. Rather the question
    " has to be approached in two stages. First one has to ask whether,
    " as between the alleged wrongdoer and the person who has suffered
    " damage there is a sufficient relationship of proximity or neighbour-
    " hood such that, in the reasonable contemplation of the former,
    " carelessness on his part may be likely to cause damage to the latter
    " — in which case a prima facie duty of care arises. Secondly, if the
    " first question is answered affirmatively, it is necessary to consider
    " whether there are any considerations which ought to negative, or to
    " reduce or limit the scope of the duty or the class of person to whom
    " it is owed or the damages to which a breach of it may give rise. ..."

    Applying those statements of general principle as your Lordships have
    been enjoined to do both by Lord Reid and by Lord Wilberforce rather
    than to ask whether the particular situation which has arisen does or does
    not resemble some earlier and different situation where a duty of care
    has been held or has not been held to exist, I look for the reasons why,
    it being conceded that the appellants owed a duty of care to others not
    to construct the flooring so that those others were in peril of suffering
    loss or damage to their persons or their property, that duty of care should
    not be equally owed to the respondents who, though not in direct contractual
    relationship with the appellants, were as nominated sub-contractors in
    almost as close a commercial relationship with the appellants as it is
    possible to envisage short of privity of contract, so as not to expose the
    respondents to a possible liability to financial loss for repairing the flooring
    should it prove that that flooring had been negligently constructed. It is
    conceded that if the flooring had been so badly constructed that to avoid
    imminent danger the respondents had expended money upon renewing it
    the respondents could have recovered the cost of so doing. It seems
    curious that if the appellants' work had been so bad that to avoid imminent
    danger expenditure had been incurred the respondents could recover that
    expenditure but that if the work was less badly done so that remedial
    work could be postponed they cannot do so. Yet this is seemingly the
    result of the appellants' contentions.

    My Lords, I have already said that there is no decided case which
    clearly points the way. But it is, I think, of assistance to see how far the
    various decisions have gone. I shall restrict my citation to the more
    important decisions both in this country and overseas. In Dutton, which
    as already stated, your Lordships' House expressly approved in Anns, the
    Court of Appeal held that the plaintiff, who bought the house in question
    long after it had been built and its foundations inadequately inspected by
    the defendants' staff was entitled to recover from the defendants inter alia
    the estimated cost of repairing the house as well as other items of loss
    including diminution in value. There was in that case physical damage
    to the house. It was argued that the defendants were not liable for the
    cost of repairs or diminution in value. This argument was expressly
    rejected by Lord Denning M.R. at page 396 and by Sachs L.J. at pages
    403/4. Stamp L.J. at pages 414/5 was however more sympathetic to this
    argument:

    " It is pointed out that in the past a distinction has been drawn
    " between constructing a dangerous article and constructing one which
    " is defective or of inferior quality. I may be liable to one who
    " purchases in the market a bottle of ginger beer which I have

    10

    " carelessly manufactured and which is dangerous and causes injury
    " to person or property; but it is not the law that I am liable to him
    " for the loss he suffers because what is found inside the bottle and
    " for which he has paid money is not ginger beer but water. I do
    " not warrant, except to an immediate purchaser and then by contract
    " and not in tort, that the thing I manufacture is reasonably fit for
    " its purpose.

    " The submission is, I think, a formidable one and in my view raises
    " the most difficult point for decision in this case. Nor can I see any
    " valid distinction between the case of a builder who carelessly builds
    " a house which, though not a source of danger to person or property,
    " nevertheless, owing to a concealed defect in its foundations starts to
    " settle and crack and becomes valueless, and the case of a manufacturer
    " who carelessly manufactures an article which, though not a source of
    " danger to a subsequent owner or to his other property, nevertheless
    " owing to a hidden defect quickly disintegrates. To hold that either
    " the builder or the manufacturer was liable except in contract would
    " be to open up a new field of liability the extent of which could not,
    " I think, be logically controlled, and since it is not in my judgment
    " necessary to do so for the purposes of this case I do not, more
    " particularly because of the absence of the builder, express an opinion
    " whether the builder has a higher or lower duty than the manufacturer.
    " But the distinction between the case of a manufacturer of a dangerous
    " thing which causes damage and that of a thing which turns out to be
    " defective and valueless lies, I think, not in the nature of the injury
    " but in the character of the duty. I have a duty not carelessly to put
    " out a dangerous thing which may cause damage to one who may
    " purchase it; but the duty does not extend to putting out carelessly a
    " defective or useless or valueless thing. So again one goes back to
    " consider what was the character of the duty, if any, owed to the
    " plaintiff, and one finds on authority that the injury which is one of the
    " essential elements of the tort of negligence is not confined to physical
    " damage to personal property but may embrace economic damage
    " which the plaintiff suffers through buying a worthless thing, as is
    " shown by the Hedley Byrne case."

    Thus it was upon the character of the duty that the learned Lord Justice
    founded and was able to agree with the other members of the Court of
    Appeal in that case.

    My Lords, a similar question arose some years later in Batty v.
    Metropolitan Realisations Ltd. [1978] 1 Q.B. 559. By the date of this
    decision the Court of Appeal had the benefit of the decision in your
    Lordships' House in Anns. Megaw L.J., see page 570, regarded the doubts
    raised by Stamp L.J. as resolved by Lord Wilberforce's speech in Anns.
    Once again the argument based upon absence of physical damage was
    advanced as it had been in Dutton. Once again it was rejected but on
    the basis that there was in this case as in Dutton the requisite degree of
    physical damage. Bridge L.J. (as he then was) at page 573 however seems
    to me to use somewhat wider language and indeed he refers to two sentences
    at the end of Lord Wilberforce's speech in Anns [1977] 2 WLR 1039 where
    my noble and learned friend said " subject always to adequate proof of
    " causation, these damages may include damages for personal injury and
    " damage to property. In my opinion they may also include damage to
    " the dwelling house itself."

    My Lords I am inclined to think that that last sentence was directed to
    the facts in Anns where there was, as in the other cases to which I have
    referred, the element of physical damage present due to trouble with the
    foundations, rather than directed to the full breadth of the proposition for
    which the respondents in the present appeal contended. Nonetheless the
    three decisions, Dutton, Anns and Batty seem to me to demonstrate how
    far the law has developed in the relevant respect in recent years.


    11

    My Lords I turn next to the three main Commonwealth decisions. They
    are Rivtow Marine Ltd. v. Washington Iron Works (1973) 40 D.L.R. (3d) a
    decision of the Supreme Court of Canada. Caltex Oil (Australia) Pty. Ltd.
    v. The Dredge " Willemstad" (1975-6) 136 C.L.R. 529, a decision of the
    High Court of Australia, and Bowen v. Paramount Builders (Hamilton) Ltd.
    (1977) 1 N.Z.L.R. 394, a decision of the Court of Appeal of New Zealand.
    All three of these cases were decided before Anns reached your Lordships'
    House.

    My Lords, in the first of this trilogy, the Supreme Court by a majority
    held that the manufacturer of a dangerously defective article is not liable
    in tort to an ultimate consumer or user of that article for the cost of
    repairing damage arising in the article itself nor for such economic loss as
    would have been sustained in any event as a result of the need to effect
    repairs. But there was, if I may respectfully say so, a powerful dissenting
    judgment by Laskin J. (as he then was) with which Hall J. concurred. The
    learned judge posed as the first question (page 549) whether the defendants'
    liability for negligence should embrace economic loss where there has been
    no physical harm in fact. He gave an affirmative answer. After pointing
    out (at page 551) that the judicial limitation on liability was founded upon
    what I have called " the floodgates " argument rather than upon principle,
    he adopted the view that economic loss resulting from threatened physical
    loss from a negligently designed or manufactured product was recoverable.
    It was this judgment which my noble and learned friend Lord Wilberforce
    described in his speech in Anns as of strong persuasive force—see pages
    759/60. In the Caltex case, the High Court of Australia elaborately
    reviewed all the relevant English authorities and indeed others as well.
    My Lords, I hope I shall not be thought lacking in respect for those elaborate
    judgments or failing to acknowledge the help which I have derived from
    them if I do not cite from them for to some extent certain of the difficulties
    there discussed have been subsequently resolved by the decision of this
    House in Anns. In Bowen, to which Lord Wilberforce also referred in
    Anns as having afforded him much assistance, the Court of Appeal in New
    Zealand followed the Court of Appeal decision in Button. Cooke J. took
    the view that it was enough for the purpose of the case in question to say
    that the damage was basically physical. But as the passage at page 423
    of the report shows, he would have been prepared in agreement with the
    judgments of Lord Denning M.R. and of Sachs L.J. In Dutton to go
    further.

    My Lords, to my mind in the instant case there is no physical damage
    to the flooring in the sense in which that phrase was used in Dutton, Batty
    and Bowen and some of the other cases. As my noble and learned friend,
    Lord Russell of Killowen, said during the argument, the question which your
    Lordships' House now has to decide is whether the relevant Scots and
    English law today extends the duty of care beyond a duty to prevent harm
    being done by faulty work to a duty to avoid such faults being present in
    the work itself. It was powerfully urged on behalf of the appellants that
    were your Lordships so to extend the law a pursuer in the position of the
    pursuer in Donoghue v. Stevenson could in addition to recovering for any
    personal injury suffered have also recovered for the diminished value of the
    offending bottle of ginger beer. Any remedy of that kind it was argued
    must lie in contract and not in delict or tort. My Lords, I seem to detect
    in that able argument reflections of the previous judicial approach to
    comparable problems before Donoghue v. Stevenson was decided. That
    approach usually resulted in the conclusion that in principle the proper
    remedy lay in contract and not outside it. But that approach and its
    concomitant philosophy ended in 1932 and for my part I should
    be reluctant to countenance its re-emergence some 50 years later in the
    instant case. I think today the proper control lies not in asking whether the
    proper remedy should lie in contract or instead in delict or tort, not in
    somewhat capricious judicial determination whether a particular case falls
    on one side of the line or the other, not in somewhat artificial distinctions
    between physical and economic or financial loss when the two sometimes

    12

    go together and sometimes do not—it is sometimes overlooked that virtually
    all damage including physical damage is in one sense financial or economic
    for it is compensated by an award of damages—but in the first instance
    establishing the relevant principles and then in deciding whether the
    particular case falls within or without those principles. To state this is to
    do no more than to restate what Lord Reid said in the Dorset Yacht case
    and Lord Wilberforce in Anns. Lord Wilberforce in the passage I have
    already quoted enunciated the two tests which have to be satisfied. The first
    is " sufficient relationship of proximity", the second any considerations
    negativing, reducing or limiting the scope of the duty or the class of person
    to whom it is owed or the damages to which a breach of the duty may
    give rise. My Lords, it is I think in the application of those two principles
    that the ability to control the extent of liability in delict or in negligence
    lies. The history of the development of the law in the last 50 years shows
    that fears aroused by the " floodgates " argument have been unfounded.
    Cooke J. in Bowen (page 472) described the " floodgates " argument as
    specious and the argument against allowing a cause of action such as was
    allowed in Button, Anns and Bowen as " in terrorem or doctrinaire ".

    Turning back to the present appeal I therefore ask first whether
    there was the requisite degree of proximity so as to give rise to the
    relevant duty of care relied on by the respondents. I regard the following
    facts as of crucial importance in requiring an affirmative answer to that
    question.

    1. The appellants were nominated sub-contractors.

    2. The appellants were specialists in flooring.

    3. The appellants knew what products were required by the appellants
      and their main contractors and specialised in the production of those
      products.

    4. The appellants alone were responsible for the composition and
      construction of the flooring.

    5. The respondents relied upon the appellants' skill and experience.

    6. The appellants as nominated sub-contractors must have known
      that the respondents relied upon their skill and experience.

    7. The relationship between the parties was as close as it could be
      short of actual privity of contract.

    (8) The appellants must be taken to have known that if they did the
    work negligently (as it must be assumed that they did) the resulting
    defects would at some time require remedying by the respondents
    expending money upon the remedial measures as a consequence of which
    the respondents would suffer financial or economic loss.

    My Lords, reverting to Lord Devlin's speech in Hedley Byrne, it seems
    to me that all the conditions existed which give rise to the relevant duty of
    care owed by the appellants to the respondents.

    I then turn to Lord Wilberforce's second proposition. On the facts I
    have just stated, I see nothing whatever to restrict the duty of care arising
    from the proximity of which I have spoken. During the argument it was
    asked what the position would be in a case where there was a relevant
    exclusion clause in the main contract. My Lords, that question does not
    arise for decision in the instant appeal, but in principle I would venture the
    view that such a clause according to the manner in which it was worded
    might in some circumstances limit the duty of care just as in the
    Hedley Byrne case the plaintiffs were ultimately defeated by the defendants'
    disclaimer of responsibility. But in the present case the only suggested
    reason for limiting the damage (ex hypothesi economic or financial only)
    recoverable for the breach of the duty of care just enunciated is that hitherto
    the law has not allowed such recovery and therefore ought not in the future
    to do so. My Lords, with all respect to those who find this a sufficient
    answer I do not. I think this is the next logical step forward in the
    development of this branch of the law. I see no reason why what was

    13

    called during the argument " damage to the pocket" simpliciter should be
    disallowed when "damage to the pocket" coupled with physical damage
    has hitherto always been allowed. I do not think that this development, if
    development it be, will lead to untoward consequences. The concept of
    proximity must always involve, at least in most cases, some degree of
    reliance—I have already mentioned the words " skill" and " judgment" in
    the speech of Lord Morris of Borth-y-Gest in Hedley Byrne. These words
    seem to me to be an echo, be it conscious or unconscious, of the language
    of section 14(1) of the Sale of Goods Act 1893. My Lords, though the
    analogy is not exact, I do not find it unhelpful for I think the concept of
    proximity of which I have spoken and the reasoning of Lord Devlin in the
    Hedley Byrne case involve factual considerations not unlike those involved
    in a claim under section 14(1); and as between an ultimate purchaser and a
    manufacturer would not easily be found to exist in the ordinary every day
    transaction of purchasing chattels when it is obvious that in truth the
    real reliance was upon the immediate vendor and not upon the
    manufacturer.

    My Lords, I have not thought it necessary to review all the cases cited in
    argument. If my conclusion be correct, certain of them can no longer be
    regarded as good law and others may have to be considered afresh hereafter,
    for example whether the decision of the majority of the Court of Appeal
    in Spartan Steel Alloys Ltd. v. Martin & Co. (Contractors) Ltd. is correct or
    whether the reasoning of Edmund-Davies L.J. (as he then was) in his
    dissenting judgment is to be preferred, and whether the decision of the First
    Division in Dynamco Ltd. v. Holland & Hannan & Cubitts (Scotland) Ltd.
    1971 SC 257, a decision given after the Dorset Yacht case but before Anns,
    but seemingly without reference to the Dorset Yacht case, is correct.

    My Lords, for all these reasons I would dismiss this appeal and allow this
    action to proceed to proof before answer.

    My Lords, I would add two further observations. First, since preparing
    this speech I have had the advantage of reading in draft the speech of
    Lord Fraser of Tullybelton, with which I agree. Secondly, my attention has
    been drawn to the decision of the Court of Appeal in New Zealand in
    Mount Albert Borough Council v. Johnson [1979] 2 N.Z. L.R. 234. The
    judgment of Cooke and Somers J.J. in which the decision in Bowen is stated
    to reflect the present law in New Zealand (see pp. 238-9) is consonant with
    the views I have expressed in this speech.

    Lord Brandon of Oakbrook

    my lords,

    This appeal arises in an action in which Junior Books Limited are the
    pursuers and The Veitchi Company Limited are the defenders. In that
    action, which purports to be founded in delict, the pursuers seek reparation
    from the defenders for loss and damage which they claim to have suffered
    by reason of the want of care of the defenders in laying flooring at the
    pursuers' factory in Grangemouth.

    The defenders made a general challenge to the relevancy of the averments
    contained in the pursuers' Condescendence at Procedure Roll. The question
    of law raised by that challenge came first before the Lord Ordinary (Lord
    Grieve). He decided the question in favour of the pursuers, and by an
    Interlocutor of 22nd November 1979 allowed them a proof before answer
    of all their averments. The defenders reclaimed to the Inner House and by
    an Interlocutor of 1st September 1980 the Second Division, consisting of the
    Lord Justice Clerk (Lord Wheatley), Lord Kissen and Lord Robertson,
    refused the reclaiming motion and affirmed the Interlocutor of the Lord
    Ordinary. The defenders now appeal from that decision to your Lordships'
    House.

    Avoiding all matters of detail, the averments contained in the
    Condescendence can be summarised as follows. 1. In 1969-70, the pursuers
    had built for them by main contractors a factory in Grangemouth.


    14

    2. Earlier, in July 1968, the pursuers' architects had nominated the defenders
    as sub-contractors to lay flooring, consisting of a magnesium oxychloride
    composition, in the production area of the factory. 3 The pursuers'
    architects, in so nominating the defenders, had relied on the fact that the
    defenders were specialists in the laying of flooring. 4. The defenders had
    accepted the nomination and, after entering into a contract with the main
    contractors, laid flooring of the specified composition in the specified area.
    5. It was the duty of the defenders to mix and lay the flooring with reasonable
    care. 6. The defenders were in breach of that duty in that they failed, in a
    number of respects, to mix and lay the flooring with reasonable care. 7. In
    consequence of that breach of duty by the defenders the flooring began to
    develop cracks in 1972 and had gone on cracking more and more ever since.
    8. As a result of the cracking of the flooring the pursuers suffered the
    following items of damage or loss: necessary relaying or replacement of the
    flooring £50,000; storage of books during the carrying out of the work £1,000;
    removal of machinery to enable the work to be done, £2,000; loss of profits
    due to disturbance of business £45,000; wages of employees thrown away
    £90,000; overheads thrown away £16,000; investigation of necessary treatment
    of flooring £3,000. The total of these items was pleaded as £206,000; it is
    in fact, although the point is not material, £207,000.

    For the purpose of considering the relevancy of the pursuers' averments
    of fact, it is necessary to make the assumption that all such averments are
    true. On the basis of that assumption, the dispute between the parties is
    not whether the defenders owed a duty of care to the pursuers in connection
    with the laying of the flooring: the existence of some duty arising from
    the proximity of the parties is, rightly in my view, admitted by the
    defenders. The dispute is rather concerned with the scope of that admitted
    duty of care.

    For the defenders, on the one hand, it was contended that the duty was
    limited to a duty to exercise reasonable care so to mix and lay the flooring
    as to ensure that it was not a danger to persons or property, excluding for
    this purpose the property brought into being by the work and labour done,
    that is to say the flooring itself. For the pursuers, on the other hand, it
    was contended that the duty was a duty to exercise reasonable care so to
    mix and lay the flooring as to ensure that it was free of any defects,
    whether dangerous to persons or property or not; alternatively, if the
    duty was in principle that put forward by the defenders, the relevant
    property, damage to which the defenders were under a duty to exercise
    reasonable care to avoid, included the property brought into being by the
    work and labour done, that is to say the flooring itself.

    In relation to that dispute it is common ground that, so far as the
    present case is concerned, there are no material differences between the
    Scottish law of delict and the English law of negligence, so that authorities
    relating to the latter are properly to be taken into account in relation to
    the former. It is further common ground that authorities in Commonwealth
    countries, the laws of which, in so far as they are not statutory, are
    derived from the English common law, may usefully be considered, although
    their value is necessarily persuasive only.

    My Lords, it appears to me clear beyond doubt that, there being no
    contractual relationship between the pursuers and the defenders in the
    present case, the foundation, and the only foundation, for the existence
    of a duty of care owed by the defenders to the pursuers, is the principle
    laid down in the decision of your Lordships' House in Donoghue v.
    Stevenson [1932] AC 562. The actual decision in that case related only
    to the duty owed by a manufacturer of goods to their ultimate user or
    consumer, and can be summarised in this way: a person who manufactures
    goods which he intends to be used or consumed by others, is under a duty
    to exercise such reasonable care in their manufacture as to ensure that they
    can be used or consumed in the manner intended without causing physical
    damage to persons or their property.

    15

    While that was the actual decision in Donoghue v. Stevenson, it was
    based on a much wider principle embodied in passages in the speech of
    Lord Atkin, which have been quoted so often that I do not find it
    necessary to quote them again here. Put shortly, that wider principle is
    that, when a person can or ought to appreciate that a careless act or
    omission on his part may result in physical injury to other persons or their
    property, he owes a duty to all such persons to exercise reasonable care to
    avoid such careless act or omission.

    It is, however, of fundamental importance to observe that the duty of
    care laid down in Donoghue v. Stevenson was based on the existence of
    a danger of physical injury to persons or their property. That this is so,
    is clear from the observations made by Lord Atkin at pp.581-2 with
    regard to the statements of law of Lord Esher (then Sir Baliol Brett M.R.)
    in Heaven v. Pender (1883) 11 Q.B.D. 503 at p.509. It has further, until
    the present case, never been doubted, so far as I know, that the relevant
    property for the purpose of the wider principle on which the decision in
    Donoghue v. Stevenson was based, was property other than the very
    property which gave rise to the danger of physical damage concerned.

    My Lords, I have already indicated my opinion that the wider principle
    on which the decision in Donoghue v. Stevenson was based applies to the
    present case. The effect of its application is that the defenders owed a
    duty to the pursurers to exercise reasonable care so to mix and lay the
    flooring as to ensure that it did not, when completed and put to its
    contemplated use, constitute a danger of physical damage to persons or
    their property, other than the flooring itself.

    The averments contained in the Condescendence in the present case do
    not include any averment that the defects in the flooring complained of
    by the pursuers either constitute presently, or might reasonably be expected
    to constitute in the future, a danger of physical damage to persons or their
    property, other than the flooring itself. In the absence of any averment
    of that kind, I am of opinion that the averments contained in the Condescen-
    dence disclose no cause of action in delict and are accordingly irrelevent.

    My Lords, a good deal of the argument presented to your Lordships
    during the hearing of the appeal was directed to the question whether a
    person can recover, in an action founded on delict alone, purely pecuniary
    loss which is independent of any physical damage to persons or their
    property. If that were the question to be decided in the present case, I
    should have no hesitation in holding that, in principle and depending on
    the facts of a particular case, purely pecuniary loss may be recoverable
    in an action founded on delict alone. Two examples can be given of such
    cases. First, there is the type of case where a person suffers purely
    pecuniary loss as a result of relying on another person's negligent mistate-
    ments. Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465.
    Secondly, there may be a type of case where a person, who has a cause
    of action based on Donoghue v. Stevenson, reasonably incurs pecuniary
    loss in order to prevent or mitigate imminent danger of damage to the
    persons or property exposed to that danger: see the dissenting judgment
    of Laskin J. in the Canadian Supreme Court case of Rivtow Marine Ltd.
    v. Washington Iron Works (1973) 6 W.W.R.692, referred to with approval
    in the speech of Lord Wilberforce in Anns v. Merton London Borough
    Council
    [1978] AC 728 at p.760.

    I do not, however, consider that the question of law for decision in
    this case is whether a person can, in an action founded in delict alone,
    recover for purely pecuniary loss. On the contrary, I adhere to the
    nature of the question of law to be decided which I formulated earlier,
    namely, what is the scope of the duty of care owed by the defenders to
    the pursuers on the assumed facts of the present case.

    My Lords, in support of their contentions the pursuers placed reliance
    on the broad statements relating to liability in negligence contained in the
    speech of Lord Wilberforce in Anns v. Merton London Borough Council,
    supra,
    at pp.751-2 Lord Wilberforce there said:


    16

    " Through the trilogy of cases in this House—Donoghue v. Stevenson
    "
    [1932] AC 562, Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.
    " [1964] AC 465 and Dorset Yacht Co. Ltd. v. Home Office [1970]
    " A.C. 1004, the position has now been reached that in order to
    " establish that a duty of care arises in a particular situation, it is not
    " necessary to bring the facts of that situation within those of previous
    " situations in which a duty of care has been held to exist. Rather
    " the question has to be approached in two stages. First one has to
    " ask whether, as between the alleged wrongdoer and the person who
    " has suffered damage there is a sufficient relationship of proximity
    " or neighbourhood such that, in the reasonable contemplation of the
    " former, carelessness on his part may be likely to cause damage to
    " the latter—in which case a prima facie duty of care arises. Secondly,
    " if the first question is answered affirmatively, it is necessary to consider
    " whether there are any considerations which ought to negative, or to
    " reduce or limit the scope of the duty or the class of person to whom
    " it is owed or the damages to which a breach of it may give rise . . . ".

    Applying that general statement of principle to the present case, it is,
    as I indicated earlier, common ground that the first question which Lord
    Wilberforce said one should ask oneself, namely, whether there is sufficient
    proximity between the parties to give rise to the existence of a duty of
    care owed by the one to the other, falls to be answered in the affirmative.
    Indeed, it is difficult to imagine a greater degree of proximity, in the
    absence of a direct contractual relationship, than that which, under the
    modern type of building contract, exists between a building owner and a
    sub-contractor nominated by him or his architect.

    That first question having been answered in the affirmative, however, it
    is necessary, according to the views expressed by Lord Wilberforce in the
    passage from his speech in Anns v. Merton London Borough Council
    quoted above, to ask oneself a second question, namely, whether there are
    any considerations which ought, inter alia, to limit the scope of the duty
    which exists.

    To that second question I would answer that there are two important
    considerations which ought to limit the scope of the duty of care which it
    is common ground was owed by the defenders to the pursuers on the assumed
    facts of the present case.

    The first consideration is that, in Donoghue v. Stevenson itself and in
    all the numerous cases in which the principle of that decision has been
    applied to different but analogous factual situations, it has always been
    either stated expressly, or taken for granted, that an essential ingredient
    in the cause of action relied on was the existence of danger, or the threat
    of danger, of physical damage to persons or their property, excluding for
    this purpose the very piece of property from the defective condition of
    which such danger, or threat of danger, arises. To dispense with that
    essential ingredient in a cause of action of the kind concerned in the present
    case would, in my view, involve a radical departure from long-established
    authority.

    The second consideration is that there is no sound policy reason for
    substituting the wider scope of the duty of care put forward for the pursuers
    for the more restricted scope of such duty put forward by the defenders. The
    effect of accepting the pursuers' contention with regard to the scope of the
    duty of care involved would be, in substance, to create, as between two
    persons who are not in any contractual relationship with each other,
    obligations of one of those two persons to the other which are only really
    appropriate as between persons who do have such a relationship between
    them.

    In the case of a manufacturer or distributor of goods, the position would be
    that he warranted to the ultimate user or consumer of such goods that they
    were as well designed, as merchantable and as fit for their contemplated
    purpose as the exercise of reasonable care could make them.


    17

    In the case of sub-contractors such as those concerned in the present case,
    the position would be that they warranted to the building owner that the
    flooring, when laid, would be as well designed, as free from defects of any

    kind and as fit for its contemplated purpose as the exercise of reasonable care

    could make it

    In my view, the imposition of warranties of this kind on one person in
    favour of another, when there is no contractual relationship between them,
    is contrary to any sound policy requirement.

    It is, I think, just worth while to consider the difficulties which would arise
    if the wider scope of the duty of care put forward by the pursuers were
    accepted. In any case where complaint was made by an ultimate consumer
    that a product made by some persons with whom he himself had no contract
    was defective, by what standard or standards of quality would the question of
    defectiveness fall to be decided? In the case of goods bought from a
    retailer, it could hardly be the standard prescribed by the contract between the
    retailer and the wholesaler, or between the wholesaler and the distributor, or
    between the distributor and the manufacturer, for the terms of such contracts
    would not even be known to the ultimate buyer. In the case of sub-
    contractors such as the defenders in the present case, it could hardly be the
    standard prescribed by the contract between the sub-contractors and the
    main contractors, for, although the building owner would probably be aware
    of those terms, he could not, since he was not a party to such contract, rely
    on any standard or standards prescribed in it. It follows that the question by
    what standard or standards alleged defects in a product complained of by
    its ultimate user or consumer are to be judged remains entirely at large and
    cannot be given any just or satisfactory answer.

    If, contrary to the views expressed above, the relevant contract or
    contracts can be regarded in order to establish the standard or standards of
    quality by which the question of defectiveness falls to be judged, and if such
    contract or contracts happen to include provisions excluding or limiting
    liability for defective products or defective work, or for negligence generally,
    it seems that the party sued in delict should in justice be entitled to rely on
    such provisions. This illustrates with especial force the inherent difficulty of
    seeking to impose what are really contractual obligations by unprecedented
    and, as I think, wholly undesirable extensions of the existing law of delict.

    By contrast, if the scope of the duty of care contended for by the defenders
    is accepted, the standard of defectiveness presents no problem at all. The
    sole question is whether the product is so defective that, when used or
    consumed in the way in which it was intended to be, it gives rise to a danger
    of physical damage to persons or their property, other than the product
    concerned itself.

    My Lords, for the reasons which I have given, I would decide the
    question of relevancy in favour of the defenders and allow the appeal
    accordingly.

    3141794—3 Dd 8209971 C2 7/82



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