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Cite as: [1988] EWCA Civ 15, [1988] QB 758

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JISCBAILII_CASE_TORT

Neutral Citation Number: [1988] EWCA Civ 15

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM AN ORDER OF HIS HONOUR JUDGE JOHN NEWEY Q.C. OFFICIAL REFEREE'S BUSINESS)

Royal Courts of Justice
17th February 1988

B e f o r e :


____________________

SIMAAN GENERAL CONTRACTING COMPANY (a firm)

v.

PILKINGTON GLASS LIMITED

____________________

(Transcript of The Association of Official Shorthandwriters Limited, Room 392, Royal Courts of Justice, and 2, New Square, Lincoln's Inn, London WC2A 3RU.)

____________________

MR D.M. HARRIS, instructed by C.R. Bayley Esq. (St. Helen's), appeared for the Appellants (Defendants).
MR R. TAGER, instructed by Messrs Michael Conn & Co., appeared for the Respondents (Plaintiffs).

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    THE MASTER OF THE ROLLS: I will ask Lord Justice Bingham to give the first judgment.

    LORD JUSTICE BINGHAM: This appeal concerns a new building in Abu Dhabi. It is owned by Sheikh Al-Oteiba, who is not a party to the action. The main contractors under the building contract for the building are the plaintiffs in this action and the respondents to this appeal ("Simaan"). The supply and erection of curtain walling for the building were subcontracted to Industria Componenti Per L'Architettura Feal SpA ("Feal"), who are not parties to the action. Glass units for incorporation in the curtain walling were supplied by the appellant defendants ("Pilkington") to Feal.

    Pilkington appeal against a decision of His Honour Judge Newey Q.C., sitting as an Official Referee, on a preliminary issue argued before him. The issue was:

    "In manufacturing the double-glazed units to be incorporated into the curtain wall of the Al-Oteiba Building, did Pilkington as the specified supplier of the units, owe to Simaan, as the main contractors, a duty to take reasonable care to avoid defects in the units which (it is assumed for the purpose of this preliminary issue) have caused Simaan economic loss as alleged in paragraphs 14 and 15 of the Statement of Claim?"

    The assumed loss is the withholding of money which Simaan would otherwise have been entitled to receive from the building owner,and loss of interest. The alleged defects in the glass (also to be assumed for purposes of the issue) relate not to their durability, serviceability or present or future performance characteristics, but simply to their colour. They should have been a uniform shade of green. They are (it is said) in variable shades of green, and in places red. This colour discrepancy is not acceptable to the building owner, being (it is said) unpleasant in appearance, contrary to specification and not in accordance with a sample supplied. Green is the colour of peace in Islam, so the discrepancy is regarded as one of some moment.

    The learned judge resolved the issue in favour of Simaan, holding that in all the circumstances Pilkington did owe them a duty of care. In reaching this conclusion he made a wide-ranging survey of the law of negligence since 1932, but he relied in particular on the House of Lords' much-discussed decision in Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520. Factually, the situation in Junior Books was different from that here. The pursuers were the building owner, not (as here) the main contractor. The plaintiff had received a floor which was unfit for use as such, not (as here) a wall which was serviceable as such but unacceptable visually. The defenders were sub-contractors nominated by the plaintiff, not (as here) a supplier of goods. The judge's decision accordingly involves the application of Junior Books to a new factual situation. That is not in itself an objection to his decision. It is how the law develops. The question for us is whether Junior Books (or any other case) lays down a principle which can and ought to lead us on the present facts to answer the question as the judge did.

    I do not think that any very detailed account of the facts is called for. From an early stage in the planning of this building project the Sheikh's architect favoured the use of Pilkington's Suncool 24/22 green double-glazed units in the curtain wall of the proposed building. The architect and Pilkington discussed the technical properties of the material in detail and a sample was supplied to the architect. On 6th July 1982 the main contract for the building was made between the sheikh and Simaan. It incorporated the Conditions of Contract (International) for works of Civil Engineering Consctruction (FIDIC) dated March 1987, Part 1, subject to variations and amendments. Under the contract Simaan were entitled to subcontract parts of the work with approval, but not so as to relieve themselves of liability to the building owner. There was no clause governing the transfer of title to goods delivered to site for purposes of the building or incorporated in it. There was an arbitration clause. The contract was to be governed by the law of Abu Dhabi; no evidence of Abu Dhabi law has been adduced, so English law principles are assumed to apply. The contract incorproated a specification which contained this provision:

    "Glass Types (All glass to be approved by the Engineer) 1. Curtain Wall:
    Pilkington [Suncool] Ref 24/22 (Green) sealed double glazing units or other approved with similar characteristics
    Shading coefficient 0.25
    'U' value 1.80 W/m2 deg C/hr
    Visible light transmission 0.24
    reflectance 0.19
    Solar radiant heat reflectance 0.21
    absorption 0.64
    Total transmission 0.22
    Sound insulation 29 dBA".

    Failure to meet these technical requirements could have had far-reaching effects, for example on the air-conditioning of the building. But no such failure is alleged. It is only the colour which gives rise to complaint. No other manufacturer produced glass having these characteristics.

    On 31st July 1983 Simaan subcontracted to Feal the works:

    "for the installation complete of curtain walling and all aluminium components and metalwork including ... the exclusive use of glass supplied by Messrs. Pilkington Brothers of St. Helens, Lancashire, England."

    The subcontract terms broadly followed those of the main contract, although the arbitration clause was different. Both before and after the placing of the subcontract Feal did their best to induce the architect to use glass other than Pilkington's, but without success. So Feal at the end of 1983 ordered the units from Pilkington, the contract apparently containing no exemption clauses.

    Pilkington proceeded to fabricate units to the dimensions specified for the building. It seems that the mineral coatings may have been incorrectly applied to the inner side of the outer layer of glass of the units, with the result that a uniform green colouring was not achieved, but no-one appreciated this at the time.

    The units were shipped to Abu Dhabi and Pilkington were paid. Feal incorporated the units in the curtain walling which they erected, but the architect objected to the "variation in inconsistency in the colour/shading of the glass between the various panels and within each panel", and after unsuccessful attempts to find a solution Simaan rejected the units and instructed Feal to replace the units with glass panels to be approved by the architect and the building owner. To date, no replacement has taken place. The building owner has not paid Simaan, nor has Simaan paid Feal, the price attributable to the supply of the panels.

    In this situation one might expect a claim by the building owner against Simaan (to be arbitrated if disputed), by Simaan against Feal (also to be arbitrated if disputed), and by Feal against Pilkington. This procedure would, in the absence of agreement on an alternative procedure to save time and expense, be cumbersome, but it would reflect the contractual obligations which the parties had respectively undertaken. The problem arises here because Simaan have chosen to sue Pilkington in tort rather than Feal in contract.

    In Junior Books the defenders were specialists in the laying of floors, nominated by the pursuers' architect as subcontractors to lay the floor at the pursuers' new factory. In laying the composition floor the defenders used too wet a mixture and applied too thin a top coat and failed to cure the material properly. As a result cracks began to appear in the floor and it started to break up. The floor required replacement and the pursuers contended that while this replacement work was carried out they would lose business and incur irrecoverable overheads. The issue was determined on the defenders' plea to the relevancy of the pursuers' averments, so that (as here) the facts alleged by the pursuers had to be assumed to be true. The full averments are reported in [1982] S.L.T. 333.

    Since Lord Roskill's speech in Junior Books represents the high water mark both of that decision and of Simaan's argument, I begin my analysis of the case by considering it. Lord Rcskill saw the pursuers' claim as one based on pure economic loss, not physical damage to the floor. There was no danger to life or limb or any other property. The question was whether English law extended the duty of care beyond a duty to prevent harm being done by faulty work to a duty to avoid such fault being present in the work itself/ The answer should, he said, be founded on considerations of principle rather than policy. Lord Roskill acknowledged that Donoghue v. Stevenson [1932] AC 562 had at first been understood as limited to cases of physical injury or damage to the plaintiff's person or property, but pointed out that claims for pure economic loss had succeeded (narrowly) in Morrison Steamship Co. Ltd. v. Greystoke Castle (Cargo Owners) [1947] A.C. 265 and decisively (in principle) in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465. His Lordship referred to the statement of principle by Lord Reid in Dorset Yacht Co. Ltd. v. Home Office [1970] AC 1004 at 1026, and to the two-stage test proposed by Lord Wilberforce in Anns v. Merton London Borough Council [1978] AC 728 at 751. He drew attention to Dutton v. Bognor Regis Urban District Council [1972] 1 Q.B. 373, Anns and Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B. 554 as cases in which claims for economic loss had succeeded when allied to claims for physical damage. He then applied Lord Wilberforce's two-stage test. He found that on the facts alleged there was sufficient proximity, the parties' relationship being almost as close as if contractual. He attached importance to the defenders' role as nominated subcontractors and to the pursuers' reliance on their skill and experience. He held that the concept of proximity must always involve, at least in most cases, some degree of reliance. He did not consider the pursuers' title to sue because he did not regard the case as one of physical damage and the pursuers' ownership of the defective floor was obvious anyway. At the second stage of Lord Wilberforce's test he saw no reason to restrict the defenders' duty of care. There was on the facts no relevant exclusion clause, but, had there been, it might (he thought) have limited the duty of care like the disclaimer of responsibility in Hedley Byrne. Lord Roskill regarded the point at issue as new and as one "of fundamental importance" in the development of the law of delict and negligence. He held that where Lord Wilberforce's two-stage test was met, there was no reason to disallow a claim for pure economic loss.

    Lord Fraser of Tullybelton expressed full agreement with Lord Roskill's conclusion and reasons. He regarded the appeal as raising an important question not precisely covered by authority. He addressed himself specifically to two suggested problems. The first was the risk that allowing the relevancy of the pursuers' claim might open the floodgates to a mass of claims. He discounted that risk in reliance on the very close proximity of these parties, the pursuers having nominated and relied on the skill and knowledge of the defenders. In Lord Fraser's opinion the case fell within limits already recognised in principle, and he decided the appeal strictly on its own facts, foremost among these being the proximity of the parties. The second problem was to ascertain the standard of duty to be owed in a situation where the contract between builder and purchaser stipulated a standard of which a subsequent purchaser might wish to complain. That was not a difficulty which arose on the appeal because the pursuers had full knowledge of the defenders' contractual duties.

    Lord Russell of Killowen agreed with Lord Fraser and Lord Roskill.

    Lord Keith of Kinkel agreed in the result but on a narrower ground. He concluded that the defenders owed the pursuers a duty to take reasonable care to see that their workmanship was not faulty, and were liable for the foreseeable consequences, sounding in economic loss, of their failure to do so. Such loss could include reduced profitability and the cost of relaying the floor. But Lord Keith did not hold the pursuers entitled to succeed on the ground that the floor, being defective from the start, was, without being harmful in any way, useless or worthless or defective in quality so that the pursuers had wasted the money spent on it. To impose a general duty in such a situation on manufacturers towards ultimate consumers would, he held, be disruptive of commercial practice. It was also unnecessary since a right of action in contract existed anyway.

    Lord Brandon of Oakbrook dissented. He had no doubt that an action in delict or negligence could lie to recover economic loss alone. He was satisfied that the defenders owed the pursuers a duty to exercise reasonable care to lay the floor so that it did not, when completed and in use, constitute a danger of physical damage to persons or their property, other than the flooring itself. He agreed that there was sufficient proximity to give rise to a duty of care, but held that there were two considerations which should limit the scope fo the defenders' duty. The first was the absence of danger of physical damage to persons or property (other than the property the defective condition of which gave rise to the danger), although in and since Donoghue v. Stevenson this had been regarded as an essential ingredient. The second was the difficulty and undesirability of creating between parties not in a contractual relationship obligations only appropriate between parties who were.

    Plainly this decision contained within it the seeds of a major development of the law of negligence. According to Professors J.C. Smith and Peter Burns, "The implications of the case for the law of contracts and products liability are staggering to say the least" ([1983] 46 M.L.R. 147 at 153). It remained to be seen whether those seeds would be encouraged or permitted to germinate. The clear trend of authority since Junior Books has indicated that, for the time being at least, they will not.

    Lord Wilberforce's two-stage test in Anns was treated with some reservation in a series of House of Lords decisions (see Yuen Kun Yeu v. Attorney General of Hong Kong [1987] 3 W.L.R. 776 at 782D) culminating in the conclusion (ibid., at 785G):

    "In view of the direction in which the law has since been developing, their Lordships consider that for the future it should be recognised that the two-stage test in Anns v. Merton London Borough Council [1978] AC 728, 751-752, is not to be regarded as in all circumstances a suitable guide to the existence of a duty of care."

    Increasingly, emphasis is placed on the observation of Lord Keith of Kinkel in Governors of the Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985] 1 A.C. 210 at 241C:

    "So in determining whether or not a duty of care of particular scope was incumbent upon a defendant it is material to take into consideration whether it is just and reasonable that it should be so."

    See, for example, Curran v. Northern Ireland Co-Ownership Housing Association Ltd. [1987] 2 W.L.R. 1043 at 1052A; Hill v. Chief Constable of West Yorkshire [1987] 2 W.L.R. 1126 at 1132H.

    In Tate & Lyle Industries Ltd. v. Greater London Council [1983] 2 AC 509 at 530H Lord Templeman said:

    "My Lords, in the cited relevant cases from Donoghue v. Stevenson to Junior Books the plaintiff suffered personal injury or damage to his property. In the present case Tate & Lyle assert that they have suffered damage to their property caused by interference with their right to use their jetties for the benefit of their sugar refining business."

    The claim in negligence failed because Tate & Lyle were held to have no right to any particular depth of water at their jetties. Both Lord Keith and Lord Roskill agreed with Lord Templeman's speech.

    In Muirhead v. Industrial Tank Specialities Ltd. [1986] QB 507 the plaintiff owned a storage tank for live lobsters and the third defendants manufactured electric motors which had been incorporated in pumps used to circulate and oxygenate the water in the tank, as was necessary for the survival of the lobsters. The motors, manufactured in France, were to some extent incompatible with the electricity supply system in this country. The result was that they cut out, the lobsters died and the plaintiff suffered loss associated with the death of the lobsters and additional economic loss. The judge held the third defendants liable to the plaintiff in tort for all the loss suffered and the third defendants appealed.

    In his judgment in the Court of Appeal Robert Goff L.J. (as he then was) carefully analysed the speeches of the House of Lords in Junior Books. Then, turning to the case before him, he said this (at 526E):

    "In order to decide whether the judge was right to approach the case before him on the basis of the principle in the Junior Books case, it is necessary first of all to seek to identify the principle. Both Lord Fraser of Tullybelton and Lord Roskill appear to have been influenced in particular by what Lord Fraser of Tullybelton described, at p. 533, as 'the very close proximity between the parties.' In seeking to understand what they had in mind it is perhaps important to bear in mind what is usually meant by the word 'proximity' when used in this context. It does not bear its normal meaning in ordinary speech; as is plain from Lord Atkin's speech in Donoghue v. Stevenson [1932] AC 562, 581, it is used as a convenient label to describe a relationship between the parties by virtue of which the defendant can reasonably foresee that his act or omission is liable to cause damage to the plaintiff of the relevant type. In this context, the word 'relationship' refers to no more than the relative situations of the parties, as a consequence of which such foreseeability of damage may exist. As I see it, Lord Fraser of Tullybelton cannot have been referring to proximity in the sense I have described; and Lord Roskill, when he spoke of the very close 'relationship' between the parties must, I think, have had in mind the dealings between the parties which led to the pursuers nominating the defenders, who were specialists in flooring, as subcontractors to lay the flooring in their factory.
    "A particular problem arises, however, with reference to reliance. Lord Roskill, in the passage which I have quoted from his speech, [1983] 1 AC 520, 546*547, appears to have regarded reliance by the plaintiff on the defendants as significant, as does Lord Fraser of Tullybelton, at p. 533. But neither explains why he regarded such reliance as important. Lord Roskill referred to Hedley Byrne & Co. Ltd. y. Heller & Partners Ltd. [1964] A.C. 456, in which reliance by the plaintiff was relevant because, without it, the defendant's negligent misstatement would have caused the plaintiff no damage: he also referred to section 14(1) of the Sale of Goods Act 1893, which was concerned with a manifestation of reliance by the plaintiff on the defendant's skill and judgment which supports the implication of a term in a contract of sale (cf. now section 14(3) of the Sale of Goods Act 1979). Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520 was concerned with neither such case, but with reliance by the pursuers on the defenders to install a floor which was not defective. It is not, however, clear why reliance should distinguish a case such as Junior Books Ltd. v. Veitchi Co. Ltd. from other cases in which a defendant may not be held liable. There is, of course, a sense in which it can be said that every successful plaintiff in an action of negligence has relied on the defendant not to be negligent, as every motorist relies on every other motorist in the vicinity to drive carefully; but presumably neither Lord Fraser of Tullybelton nor Lord Roskill had that kind of reliance in mind. There is also a sense in which a purchaser of goods relies on the manufacturer to have manufactured goods which are not defective, and so decides to order goods, made by the particular manufacturer, from his immediate supplier. Lord Fraser of Tullybelton and Lord Roskill were, however, at pains to distinguish such a case from the case before them. But they did not identify the ground of distinction; and we can see the difficulty which the judge in the present case faced in grappling with the notion of reliance on the facts of the case before him.
    "Yet another problem arises from the fact that Lord Fraser of Tullybelton considered, at p. 543, that the building owner in the Junior Books case, who had full knowledge of the sub-contractors' contractual duties to the main contractor, could be in no better position than the main contractor; and that Lord Roskill, although expressing no concluded opinion, appears to have inclined to the same view, at p. 546. But the question then arises: on what principle are contractual terms, not arising under a contract between the parties, to be relevant to a claim in negligence? For only if that principle is identified can we discern in what cases they are to be held applicable in future.
    "Having studied the speeches of Lord Fraser of Tullybelton and Lord Roskill in the Junior Books case the only principle I feel able to formulate which is consistent with (1) the relevance of 'the very close proximity between the parties;' (2) the relevance of reliance by the plaintiff on the defendant; and (3) the fact that the defendant may be able to rely on contractual terms with a third party in order to defeat the plaintiff's claim against him, is that, on the facts in the Junior Books case, it was considered by the majority of the House of Lords that the nominated sub-contractor had assumed a direct responsibility to the building owner. Voluntary assumption of responsibility, in circumstances akin to contract, was the basis of liability in Hedley Byrne & Co. Ltd. y. Heller & Partners Ltd. [1964] AC 465, which Lord Roskill regarded as relevant in Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520, both to the invocation by the defendant of contractual terms with a third party, and to reliance. However, I feel very diffident in so analysing the Junior Books case, because that analysis appears to me to be difficult to reconcile with the factual situation in that case, in which the parties had deliberately structured their contractual relationship in order to achieve the result that (apart from any special arrangements) there should be no direct liability inter se.
    "Faced with these difficulties it is, I think, safest for this court to treat Junior Books as a case in which, on its particular facts, there was considered to be such a very close relationship between the parties that the defenders could, if the facts as pleaded were proved, be held liable to the pursuers. I feel fortified in adopting that approach by three matters. First, Lord Fraser of Tullybelton stressed, at p. 533, that he was deciding the appeal before him 'strictly on its own facts.' Second, in the advice of the Privy Council in Candlewood Navigation Corporation Ltd. v. Mitsui O.S.K. Lines Ltd. [1986] AC 1, Lord Fraser of Tullybelton,.who delivered the advice, appears to have treated Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520 as a decision of limited application.
    Third, both Lord Fraser of Tullybelton and Lord Roskill in the Junior Books case gave examples which assist us in approaching the present case on a pragmatic basis. For Lord Fraser of Tullybelton, at p. 533, considered that the very close proximity between the parties in his view distinguished the case before him from 'the case of producers of goods to be offered for sale to the public;' and Lord Roskill, at p. 547, contrasted cases in which (as in Hedley Byrne & Co. Ltd. v. Heller & Pertners Ltd. [1964] AC 465 and section 14(1) of the Sale of Goods Act 1893) there was reliance by the plaintiff on the defendant, with cases of claims by ultimate purchasers against manufacturers in respect of goods purchased under ordinary everyday transactions where 'it is obvious that in truth the real reliance was upon the immediate vendor and not upon the manufacturer.'"

    Nourse L.J. agreed. He said (at 533F):

    "In his analysis of Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520 Robert Goff L.J. has identified the three features of that case on which the decision that the nominated sub-contractor had voluntarily assumed a direct responsibility to the building owner was founded. The first two of these were very close proximity between the sub-contractor and the building owner and reliance by the building owner on the sub-contractor. Having been so decided, that case cannot, in my respectful opinion, be taken to be authority for the proposition that where those features are absent a defendant is liable in tort in respect of economic loss which is not consequent upon physical damage to the person or property of the plaintiff. Where those features are absent, I agree with O'Connor L.J. that we remain bound by the decision of this court in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] QB 27. I too regard the recent observations of the Privy Council in Candlewood Navigation Corporation Ltd. v. Mitsui O.S.K. Lines Ltd. [1986] AC 1 as being significant in this respect.
    "In the present case there was no very close proximity between the third defendant and the plaintiff. Contractually they were several stages removed from each other. More important, there was no reliance by the plaintiff on the third defendant in the sense in which that concept was applied in Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520. The people on whom the plaintiff relied to install the system and to get the right equipment, including pumps with electric motors which worked, were ITS. They were the people who stood in the same factual relationship with the plaintiff as the sub-contractor did with the building owner in the Junior Books case. The two features of very close proximity and reliance having been absent, it is unnecessary to look further in the present case. The plaintiff's claim in respect of pure economic loss must fail. I therefore agree that the appeal should be allowed to that extent."

    O'Connor L.J. agreed, relying in particular on the decision of the Court of Appeal in Spartan Steel and the observations of Lord Fraser in Candlewood, to which I now turn.

    In Candlewood a time charterer sued to recover economic loss which he had suffered because of damage caused by a third party to the chartered vessel. The Privy Council held that he could not succeed because a strong line of authority dating back to Cattle v. Stockton Waterworks Co. (1875) LR 10 QB 453 and Simpson & Co. v. Thomson (1877) 3 App. Cas. 279 established that a claimant must, to succeed, have a proprietary or possessory interest in the damaged property. A mere right to its use was not enough. The cases, it was held (at 17F):

    "show, in their Lordships' opinion, that the justification for denying the right of action to a person who has suffered economic damage through injury to the property of another is that for reasons of practical policy it is considered to be inexpedient to admit his claim."

    Giving the advice of the Board, Lord Fraser referred to, but shortly dismissed, the decision in Junior Books (at 24H):

    "Finally their Lordships must refer to the recent decision of the House of Lords in an appeal from Scotland: Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520. That case may be regarded as having extended the scope of duty somewhat, but any extension was not in the direction of recognising a title to sue in a party who suffered economic loss because his contract with the victim of the wrong was rendered less profitable or unprofitable. It is therefore not in point here."

    A similar point arose in Leigh and Sillavan Ltd. y. Aliakmon Shipping Co. Ltd. [1986] AC 785, where a buyer with no legal or possessory interest in goods claimed damages against a shipowner for causing damage to them. The buyer placed reliance on Junior Books. The claim failed for want of title to sue. Lord Brandon (in a speech in which the other members of the House concurred) said (at 817C):

    "Mr. Clarke sought to rely also on Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520. That was a case in which it was held by a majority of your Lordships' House that, when a nominated sub-contractor was employed by a head contractor under the standard form of R.I.B.A. building contract, the sub-contractor was not only under a contractual obligation to the head contractor, under the sub-contract between them, not to lay a defective factory floor, but also owed a duty of care in tort to the building owner not to do so and thereby cause him economic loss. The decision is of no direct help to the buyers in the present case, for the plaintiffs who were held to have a good cause of action in negligence in respect of a defective floor were the legal owners of it. But Mr. Clarke relied on certain observations in the speech of Lord Roskill as supporting the proposition that a duty of care in tort might, as he submitted it should be in the present case, be qualified by reference to the terms of a contract to which the defendant was not a party. In this connection Lord Roskill said, at p. 546:
    'During the argument it was asked what the position would be in a case when 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 claim 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.'
    As is apparent this observation was no more than an obiter dictum. Moreover, with great respect to Lord Roskill there is no analogy between the disclaimer in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465, which operated directly between the plaintiffs and the defendants, and an exclusion of liability clause in a contract to which the plaintiff is a party but the defendant is not. I do not therefore find in the observation of Lord Roskill relied on any convincing legal basis for qualifying a duty of care owed by A to B by reference to a contract to which A is, but B is not, a party."

    In London Congregational Union Inc v. Harriss & Harriss [1988] 1 A.E.R. 15 at 25H Ralph Gibson L.J. followed authority by treating Junior Books as a case in which the pursuers had suffered damage to their property. The case is also of significance in holding that a building owner's cause of action is complete, not when he acquires a defective building (although he suffers economic loss at that time), but when damage occurs. In so holding, the Court of Appeal followed the House of Lords' decision in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners [1983] 2 A.C. 1, where an argument (based on Junior Books) that the building owner's cause of action was complete once economic loss was sustained was implicitly rejected: see pages 7C, 16F, 18G. It was accordingly argued for Pilkington here that if physical damage (in addition to economic loss) was necessary to perfect a cause of action, it followed that a cause of action could not arise in this context on proof of economic loss alone. This submission was fortified by reference to Ketteman v. Hansel Properties Ltd. [1987] 2 W.L.R. 312. In that case Lord Keith at 325H said:

    "(4) The 'doomed from the start' argument
    The appellants' presentation of this argument involved two aspects. In the first place it was maintained that the houseowners' respective causes of action accrued, not when the physical damage to their houses occurred but when they became the owners of houses with defective foundations. It was argued that they then suffered economic loss because the houses were less valuable than they would have been if the foundations had been sound. The proposition that a cause of action in tort accrued out of negligence resulting in pure economic loss was sought to be vouched by reference to Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520. That case was also cited in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners [1983] 2 A.C. 1, in support of the argument that, since in that case there was economic loss when the chimney was built, the cause of action arose then. The argument was clearly rejected in the speech of Lord Fraser of Tullybelton concurred in by all the others of their Lordships who participated in the decision. At p. 16, he expressed the opinion that a latent defect in a building does not give rise to a cause of action until damage occurs. In the present case there can be no doubt that the defects in the houses were latent. No one knew of their existence until damage occurred in the summer of 1976. This branch of the argument for the architects is, in my opinion, inconsistent with the decision in the Pirelli case, and must be rejected."

    Lord Brandon agreed. He said (at 328D):

    "The accrual issue
    "The Court of Appeal, applying the ground of decision in the Pirelli case, held that the plaintiffs' causes of action against the third defendants accrued at the various times when the structural damage to their houses, consequential on their originally defective foundations, first came into existence. The court rejected the contention put forward for the third defendants that the houses were 'doomed from the start,' and that, on the basis of the observations of Lord Fraser of Tullybelton in the Pirelli case to which I referred earlier, the plaintiffs' causes of action accrued when the houses were built. This contention was renewed by the third defendants before your Lordships' House. The argument of counsel, as I understand it, proceeded as follows. Where a house was built on defective foundations, a buyer of it might suffer two kinds of damage. The first kind of damage was physical, in the form of consequential structural failure or damage. The second kind of damage was economic loss, in the form of diminution in market value. In the case of the first kind of damage, the buyer's cause of action against any party for negligence in respect of the defective foundations accrued when the consequential structural failure or damage occurred. But, in the case of the second kind of damage, the diminution of market value was present from the time of the original construction, and it was at that earlier time that the buyer's cause of action in respect of such diminution accrued. The plaintiffs in the present case had sued for the second kind of damage, namely, diminution of market value. Their causes of action had, therefore, accrued at the date when the houses were built.
    "In my opinion this contention cannot be supported. I do not know what special cases Lord Fraser of Tullybelton had in mind when he referred in his speech in the Pirelli case to buildings 'doomed from the start.' It may be that he was only keeping open the possibility of the existence of such special cases out of major caution. Be that as it may, however, I am quite sure that he was not seeking to differentiate between causes of action in respect of making good defects or damage on the one hand, and causes of action in respect of diminution in market value on the other. In any case, on the facts of the present case it seems that the plaintiffs, in re-selling their houses at a loss, were acting reasonably in mitigation of their damage, so that the distinction between the two kinds of damage relied on is one of form rather than substance.
    "In my view there is nothing in the facts of the present case which would take it out of the general principle laid down in the Pirelli case and put it into some special class of case, if there be one, of buildings 'doomed from the start'.
    "It follows that I would answer the first question by saying that the plaintiffs' causes of action against the third defendants accrued at the dates on which the consequential structural damage to their houses first came into existence."

    It was submited for Pilkington (in brief summary):

    (1) that Simaan could not have succeeded against Pilkington before Junior Books;
    (2) that Junior Books should be regarded as a decision on its own facts;
    (3) that the assumed facts of Junior Books included crucial facts not present here, including in particular substantial damage to the subject property, ownership and occupation of the subject property by the pursuers, and close proximity based (inter alia) on nomination of the defenders' skill and judgment;
    (4) that Simaan could not show physical damage to property;
    (5) that Simaan could not show physical damage to any property in which they had any legal or possessory interests;
    (6) that Simaan could not perfect their cause of action on proof of economic loss alone;
    (7) that the glass units had not suffered damage;
    (8) that if the glass units had suffered damage Simaan had had no interest in them at the time of the damage;
    (9) that there was no express or implied assumption of responsibility by Pilkington towards Simaan;
    (10) that reasons of policy should deny Simaan a right of recovery against Pilkington on the facts assumed here.

    In a very carefully thought out and well presented argument for Simaan, Mr Tager sought to counter these arguments and to escape the toils of authority by relying on Hedley Byrne and the principles there laid down and adopted in Junior Books. Mr Tager put forward his claim as one not dependent on physical damage'and suggested that Junior Books also rested on a much wider basis. But if Simaan had to show damage to goods in which they had an interest he contended that they could do so on the ground that the panels, on rejection by the architect, reverted or passed into Simaan's ownership.

    I can, I think, state my conclusions fairly shortly:

    (1) I accept without reservation that a claim may lie in negligence for recovery of economic loss alone. Were that not so Hedley Byrne could not have been decided as it was.

    (2) I am quite sure that Pilkington owed Simaan a conventional Donoghue v. Stevenson duty of care to avoid physical injury or damage to person or property. Suppose (however improbably) that Pilkington manufactured the units so carelessly that they were liable to explode on exposure to strong sunlight and that one of the units did so explode, blinding a Simaan employee working in the building. I cannot conceive that such employee would fail in a personal injury action against Pilkington for failure to prove a duty of care.

    (3) There is no meaningful sense in which Simaan can be said to have relied on Pilkington. No doubt Simaan hoped and expected that Pilkington would supply good quality goods conforming with the contract specification. But Simaan required Feal to buy these units from Pilkington for one reason only, namely, that they were contractually obliged to do so and had no choice in the matter. There was no technical discussion of the product between Simaan and Pilkington.

    (4) Where a specialist subcontractor is vetted, selected and nominated by a building owner it may be possible to conclude (as in Junior Books) that the nominated subcontractor has assumed a direct responsibility to the building owner. On that reasoning it might be said that Pilkington owed a duty to the sheikh in tort as well as to Feal in contract. I do not, however, see any basis on which Pilkington could be said to have assumed a direct responsibility for the quality of the goods to Simaan: such a responsibility is, I think, inconsistent with the structure of the contract the parties have chosen to make.

    (5) Junior Books has been interpreted as a case arising from physical damage. I doubt if that interpretation accords with Lord Roskill's intention, but it is binding upon us. There is in my view no physical damage in this case. The units are as good as ever they were and will not deteriorate. I bridle somewhat at the assumption of defects which we are asked to make because what we have here are not, in my view, defects but failures to comply with Sale of Goods Act conditions of correspondence with description or sample, merchantability or (perhaps) fitness for purpose. It would, I think, be an abuse of language to describe these units as damaged. The contrast with the floor in Junior Books is obvious.

    (6) I do not accept that Hedley Byrne, and such authorities as Ross v. Caunters [1980] Ch. 297, establish a general rule that claims in negligence may succeed on proof of foreseeable economic loss caused by the defendant even where no damage to property and no proprietary or possessory interest are shown. If there were such a general rule, the plaintiffs in Candlewood and Aliakmon would not have failed on the ground they did and the causes of action in Pirelli and London Congregational Union would have been complete at an earlier date. However attractive it may theoretically be to postulate a single principle capable of embracing every kind of case, that is not how the law has developed. It would of course be unsatisfactory if (say) doctors and dentists owed their patients a different duty of care. I do not, however, think it unsatisfactory or surprising if, as I think, a banker's duty towards the recipient of a credit reference and an industrial glass manufacturer's duty towards a main contractor, in the absence of any contract between them, differ. Here, Simaan's real (and understandable) complaint is that Pilkington's failure to supply goods in conformity with the specification has rendered their main contract less profitable. This is a type of claim against which, if laid in tort, the law has consistently set its face.

    (7) If, contrary to my view, these units can be regarded as damaged at all, the damage (or the defects) occurred at the time of manufacture when they were Pilkington's property. I therefore think that Simaan fail to show any interest in the goods at the time when damage occurred. I very much doubt if there was any time on site, whether in course of erection or after rejection, when Simaan had a proprietary or possessory interest in the units, but I do not think it useful to pursue this, since neither was the time at which, if at all, physical damage occurred.

    (8) I do not think it just and reasonable to impose on Pilkington a duty of care towards Simaan of the scope contended for:

    (a) Just as equity remedied the inadequacies of the common law, so has the law of torts filled gaps left by other causes of action.where the interests of justice so required. I see no such gap here, because there is no reason why claims beginning with the sheikh should not be pursued down the contractual chain, subject to any shortcut which may be agreed upon, ending up with a contractual claim against Pilkington. That is the usual procedure. It must be what the parties contemplated when they made their contracts. I see no reason for departing from it.
    (b) Although Pilkington did not sell subject to exempting conditions, I fully share the difficulty which others have anticipated where there were such conditions. Even as it is, Pilkington's sale may well have been subject to terms and conditions imported by the Sale of Goods Act 1979. Some of those are beneficial to the seller. If such terms are to circumscribe a duty which would be otherwise owed to a party not a party to the contract and unaware of its terms, then that could be unfair to him. But if the duty is unaffected by the conditions on which the seller supplied the goods, it is in my view unfair to him and makes a mockery of contractual negotiation.

    I would accordingly allow the appeal and answer the question posed by the preliminary issue in the negative.

    I end with a sincere tribute to the summary of argument submitted by Mr Harris for Pilkington. This was not a skeleten, not even a cadaver. But it deployed Pilkington's argument with admirable clarity, proceeding by logical steps from proposition to proposition and giving precise and accurate references to the many authorities referred to. I have no doubt it saved hours of argument.

    It certainly saved reams of note-taking. Had it only appeared in legible form a little bit earlier my gratitude would have been total.

    LORD JUSTICE DILLON: In giving the leading speech, with which all other members of the House agreed, in Leigh and Sillavan Ltd. v. Aliakmon Shipping Co. Ltd. [1986] 1 A.C. 785 Lord Brandon stated at page 809E that,

    ".....there is a long line of authority for a principle of law that, in order to enable a person to claim in negligence for loss caused to him by reason of loss of or damage to property, he must have had either the legal ownership of or a possessory title to the property concerned at the time when the loss or damage occurred, and it is not enough for him to have only had contractual rights in relation to such property which have been adversely affected by the loss or damage to it."

    In the course of his immensely helpful opening of the present appeal, Mr Harris took us through some of the more important of the cases in this long line, viz: Cattle v. Stockton Waterworks Company (1875) LR 10 QB 453; the decision of the Privy Council in Candlewood Navigation Corporation Ltd. v. Mitsui O.S.K. Lines Ltd. [1986] AC 1; the decision of the House of Lords in Tate & Lyle Industries Ltd. v. Greater London Council [1983] 2 AC 509; and the decision of this court in Muirhead v. Industrial Tank Specialities Ltd. [1986] QB 507.

    Mr Tager for the respondent plaintiffs, Simaan, of course accepts these authorities and the principle stated by Lord Brandon, and he does not seek to bring the present case within that principle, since it is common ground that in the present case there has been no damage to property at all, let alone damage to property of which Simaan had the legal ownership or to which Simaan had a possessory title.

    The complaint against Pilkington is not of damage to property, but that the glass panels supplied by Pilkington specially for the Al-Oteiba building failed, allegedly through faults by Pilkington in their manufacture, to give the correct colour effect; the colour effect was not in accordance with the samples supplied by Pilkington, not in accordance with the expectations of the parties and not in accordance with the requirements of the contracts between the sheikh and Simaan, between Simaan and the subcontractors Feal, and between Feal and Pilkington. It is in those circumstances submitted that Simaan has a direct claim in tort against Pilkington for consequent economic loss, although there was admittedly never any contract between Simaan and Pilkington.

    Mr Tager founds that submission on the undoubted fact that there have been cases, following the principles outlined in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465, where a duty of care has been held to exist and damages have been awarded for economic loss resulting from breach of that duty of care, although there has been no loss of,or damage to, the property or person of the plaintiff. Mr Tager seeks to align the present case with Hedley Byrne principles.

    There has consequently been a good deal of discussion in argument about the controversial decision in Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520. My own view of Junior Books is that the speeches of their Lordships have been the subject of so much analysis and discussion with differing explanations of the basis of the case that the case cannot now be regarded as a useful pointer to any development of the law, whatever Lord Roskill may have had in mind when he delivered his speech. Indeed I find it difficult to see that future citation from Junior Books can ever serve any useful purpose.

    In my judgment there are at least two reasons - there may well be more - why Mr Tager's submissions cannot be accepted and Simaan's direct claim for economic loss against Pilkington must fail.

    (1) It is clear, as Lord Keith pointed out in Yuen Kun Yeu v. A.G. of Hong Kong [1987] 3 W.L.R. 776 at 783C-E by reference to the speech of Lord Wilberforce in McLoughlin v. O'Brian [1983] 1 AC 410 at 420H, that foreseeability of harm or loss does not of itself and automatically lead to a duty of care. Foreseeability of harm is a necessary ingredient of a relationship in which a duty of care will arise, but not the only ingredient. Foreseeability of harm does not become enough to make the harm recoverable by the plaintiff just because what was foreseeable was harm to the plaintiff as an individual rather than as a member of a general and unascertained class; otherwise Lord Fraser could not in Candlewood v. Mitsui have rejected the views which he cited at [1986] A.C. 22 from the judgments of Mr Justice Gibbs and Mr Justice Mason in Caltex Oil (Australia) Pty Ltd. v. Dredge "Willemstad" [1976] 136 C.L.R. 529.

    If, however, foreseeability does not automatically lead to a duty of care, the duty in a Hedley Byrne type of case must depend on the voluntary assumption of responsibility towards a particular party giving rise to a special relationship, as Lord Keith held in Yuen Kun Yeu at 787G-H (and see also his statement at 784A that Hedley Byrne was concerned with the assumption of responsibility) and as Robert Goff L.J. had earlier held in Muirhead at 528A-B in a passage which would have been before Lord Keith in Yuen Kun Yeu.

    But in the present case I can see nothing whatever to justify a finding that Pilkington had voluntarily assumed a direct responsibility to Simaan for the colour and quality of Pilkington's glass panels. On the contrary, all the indications are the other way and show that a chain of contractual relationships was deliberately arranged the way it was without any direct relationship between Simaan and Pilkington.

    (2) The approach of the law to awarding damages for economic loss on the grounds of negligence where there has been no injury to the person or property has throughout been greatly affected by pragmatic considerations. See, for example, the opinion of Lord Fraser in Candlewoodv. Mitsui 16C-D in relation to the judgment in Cattle v. Stockton Waterworks, his comments at page 21D-E on a passage in Lord Wilberforce's speech in Anns v. Merton London Borough Council [1978] AC 728 as "a useful reminder of the part played by policy in decisions as to how far the liability of a wrongdoer should extend" and his statement at page 25A-B that some limit or control mechanism has to be imposed upon the liability of a wrongdoer towards those who have suffered economic damage in consequence of his negligence.

    It might at first glance seem reasonable that, if Simaan has a right of action in contract against Feal and Feal has in respect of the same general factual matters a claim in contract - albeit a different contract - against Pilkington, Simaan should be allowed a direct claim against pilkington. But in truth to allow Simaan a direct claim against Pilkington where there is no contract between them -would give rise to formidable difficulties.

    If Simaan has a direct claim against Pilkington, so equally or a fortiori has the sheikh. Feal has its claim in contract also. All three claims should be raised in separate proceedings, whether by way of arbitration or litigation, and possibly in separate jurisdictions. The difficulties of awarding damages to any one claimant would be formidable, in view of the differing amounts of retentions by the sheikh against Simaan and by Simaan against Feal and other possibilities of set-off, and in view, even more, of the fact that none of the parties has yet actually incurred the major cost of replacing Pilkington's (assumedly) defective glass panels with new panels of the correct colour. It would not be practicable, in my view, for the court to award damages against Pilkingtons in a global sum for all possible claimants and for the court subsequently to apportion that fund between all claimants and administer it accordingly.

    Moreover, if in principle it were to be established in this case that a main contractor or an owner has a direct claim in tort against the nominated supplier to a subcontractor for economic loss occasioned by defects in the quality of the goods supplied, the formidable question would arise, in future cases if not in this case, as to how far exempting clauses in the contract between the nominated supplier and the subcontractor were to be imported into the supposed duty in tort owed by the supplier to those higher up the chain. Such difficulties were dismissed by Lord Brandon in Leigh and Sillavan Ltd. v. Aliakmon Ltd. at 817-819 and provided, as I read his speech, part of his reasoning for maintaining the established principle which I have set out at the beginning of this judgment.

    If, by contrast, the court does not extend - and in my judgment it would be an extension - the principle of Hedley Byrne to cover a direct claim by Simaan against Pilkington, no party will be left without a remedy, by English law at any rate, which is the only system of law we have been asked to consider. There will be the normal chain of liability, as Lord Pearce called it in Young & Marten v. McManus Childs Ltd. [1969] 1 A.C. 454F-470B, in that the sheikh can sue Simaan on the main building contract, Simaan can sue Feal on the subcontract and Feal can sue Pilkington. Each liability would be determined in the light of such exemptions as applied contractually, at that stage. There is thus no warrant for extending the law of negligence to impose direct liability on Pilkington in favour of Simaan. Accordingly for the foregoing reasons I agree that this appeal should be allowed.

    THE MASTER OF THE ROLLS: I have had the advantage of reading in draft the judgments delivered by my Lords, with which I am in complete agreement. I should like, in particular, to pay tribute to the assistance which I derived from the arguments of both counsel, without in any way derogating from my total agreement with the special tribute paid by Bingham L.J. to the summary of argument submitted by Mr Harris, who, appearing for the appellants, had to bear the initial burden of seeking to produce order out of a measure of authoritative chaos.

    Order: Appeal allowed with costs; judgment to be entered for the defendants; application for leave to appeal to the House of Lords refused.


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