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Cite as: [1989] AC 177, [1988] UKHL 4

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    Parliamentary Archives,

    D. &. F. Estates Limited and others (Appellants)

    Church Commissioners for England and others (Respondents)


    Die Jovis 14° Julii 1988

    Upon Report from the Appellate Committee to whom was
    referred the Cause D. & F. Estates Limited and others against
    Church Commissioners for England and others, That the
    Committee had heard Counsel on Monday the 25th, Tuesday the
    26th, Wednesday the 27th and Thursday the 28th days of April
    last upon the Petition and Appeal of D. & F. Estates Limited,
    of 18 Maddox Street, London W1, and of Melvin Tillman and
    Malka Tillman of La Roccabella, Avenue Princess Grace, Monte
    Carlo, in the Principality of Monaco, praying that the matter
    of the Order set forth in the Schedule thereto, namely an
    Order of Her Majesty's Court of Appeal of the 12th day of
    February 1988, might be reviewed before Her Majesty the Queen
    in Her Court of Parliament and that the said Order 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 upon the Case
    of Wates Limited lodged in answer to the said Appeal (so much
    of the Appeal as related to the Church Commissioners for
    England having been withdrawn by order of the House of the
    14th day of April 1988); 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 Order of Her Majesty's Court of
    Appeal (Civil Division) of the 12th day of February 1987
    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 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 if not agreed between the parties.

    Cler: Asst. Parliamentor:

    Judgment: 14.7.88






    Lord Bridge of Harwich
    Lord Templeman
    Lord Ackner
    Lord Oliver of Aylmerton
    Lord Jauncey of Tullichettle


    My Lords,

    The only parties to the litigation from which this appeal
    arises who are now concerned in the appeal are D. & F. Estates
    Ltd. and Mr. and Mrs. Tillman, who were plaintiffs in the action,
    and Wates Ltd. who were the third defendants in the action.
    Between 1963 and 1965 Wates were the main contractors employed
    by a company now in liquidation to build a block of flats on land
    belonging to the Church Commissioners in Gloucester Square,
    London W.2. The building was completed in October 1965 and was
    named Chelwood House. On 15 October 1965 the Church
    Commissioners granted a lease of flat 37 to D. & F. Estates for a
    term of 98 years from 25 March 1963. D. & F. Estates is one of
    a group of companies controlled by Mr. and Mrs. Tillman. From
    1965 to 1981 Mr. and Mrs. Tillman occupied flat 37 pursuant to an
    arrangement with D. & F. Estates, the terms of which we do not
    know, but which I presume to have been a licence.

    In August 1980, while Mr. and Mrs. Tillman were away on
    holiday and the flat was being redecorated, the decorators
    discovered that the plaster on certain ceilings and on one wall was
    loose and some of the plaster fell down. All the loose plaster
    then discovered which had not already fallen was hacked off and
    the areas affected were replastered and redecorated at a cost of
    £10,676.70. The present action was commenced in December 1980
    advancing claims by D. & F. Estates in respect of that damage
    and by Mr. and Mrs. Tillman in respect of disturbance caused to
    them while the works in the flat were being carried out. But

    - 1 -

    following an expert investigation in 1983 further defective plaster
    to both walls and ceilings was discovered and when the action
    came for trial before Judge Esyr Lewis Q.C. in June 1985 the
    damages claimed by D. & F. Estates included the estimated cost
    of further remedial work and prospective loss of rent which would
    be suffered while that remedial work was carried out.

    When Chelwood House was built the plaster-work was
    carried out not by Wates themselves but by a firm of sub-
    contractors whom they employed called R. S. Hitchens. The judge
    found that all the plaster applied to concrete surfaces was
    defective because the sub-contractors, using a particular plaster
    then newly on the market called "Gyplite," had failed to follow
    the manufacturers' instructions. They should have applied one coat
    of bonding plaster and one coat of finishing plaster, but instead
    had interposed a coat of browning plaster and it was this that in
    due course caused plaster, which should have remained sound for
    the lifetime of the building, to lose its key and require
    replacement. He said:

    "in my judgment, a careful and competent plasterer would
    not have taken the risk of departing from what I find to be
    clear and unambiguous instructions to use bonding plaster
    followed by finishing plaster on concrete surfaces generally.
    In other words I consider that the plasterers were at fault.
    It was suggested on behalf of the plaintiffs that a reason
    why the plasterers did not follow the manufacturers'
    instructions was because it was more economical and easier
    to use undercoats of bonding plaster and browning plaster to
    achieve the desired thickness instead of a single undercoat
    of bonding plaster. I am not satisfied, having heard the
    evidence of Mr. Marshall about the cost of applying the
    different grades of plaster, that this is the correct
    explanation and it is not necessary for me to come to any
    conclusion about it. It is sufficient for me to say that in
    my judgment the plasterers did not exercise due care in
    that they failed to follow the manufacturers' instruction."

    When he turned to consider the liability of Wates, the judge,
    in a key passage, said:

    "I have to decide in this case what the scope of Wates'
    duty of care to the three plaintiffs was and whether the
    plaintiffs or any of them have suffered loss as a result of
    its breach by Wates. The duty of care itself is of course
    not delegable. In the end, [counsel for the plaintiffs']
    submission was that Wates owed a duty to the plaintiffs
    adequately to supervise the work of the plasterers and that
    they failed to discharge that duty. I consider this to be the
    correct analysis of the scope and extent of Wates' duty of
    care. It has never been suggested that Wates acted
    improperly in sub-contracting the plastering work or that
    they failed to take care to appoint competent sub-
    contractors. Clause 17 of the J.C.T. form of contract
    entitled Wates to sub-contract with a written consent of the
    architect and the evidence of Mr. Perry showed that great
    care was taken in the choice of sub-contractors. If, as I
    find, Wates acted properly in sub-contracting the plastering
    work, the only way in which they could discharge their duty

    - 2 -

    of care was by taking reasonable steps to see that the
    plasterers did their work properly. Wates cannot, in my
    judgment, be held liable to the plaintiffs merely because the
    plasterers did not in fact do their work properly."

    Later the judge said:

    "should proper supervision by Wates have ascertained that
    the manufacturers' instructions were not being followed in
    relation to the plastering of concrete surfaces in flat 37?
    In my view the critical issue is whether Wates supervisors
    knew or ought to have known what the manufacturers'
    instructions were."

    The judge then reviewed the evidence of witnesses in relation to
    the general practice of supervision of sub-contractors by main
    contractors. He found that Wates’ supervisors must have known
    that three coats of plaster were being applied. He made no
    finding that they knew that this contravened the manufacturers'
    instructions, but he held in effect that they ought to have known
    and added:

    "I therefore conclude that Wates were in breach of their
    duty to provide adequate and proper supervision of the
    plastering work in relation to the concrete surfaces and that
    they are liable in negligence to the plaintiffs for this breach
    of their duty."

    The judge awarded damages exclusive of interest to D. & F.
    Estates of £10,676.70 in respect of the cost of the remedial work
    undertaken in 1980, £53,549 in respect of the estimated cost of
    future remedial works, and £24,000 in respect of loss of rent while
    the future remedial works were carried out. To Mr. and Mrs.
    Tillman he awarded £500 each, exclusive of interest, in respect of
    loss of amenity during the period when they were occupying the
    flat while the remedial works were done in 1980.

    On appeal by Wates the Court of Appeal (Fox and Glidewell
    L.JJ and Sir Roualeyn Cumming-Bruce) reversed the judge's
    decision primarily on the ground that Wates, having employed
    competent sub-contractors to carry out the plastering work owed
    no further duty of care to the plaintiffs in relation to the
    execution of the work by the sub-contractors. But the Court of
    Appeal also considered a submission made on behalf of Wates that
    the cost of repairing the defective plaster, even if the plaster
    work had been done by their own employees, was not damage
    which D. & F. Estates could recover in tort since it represented
    pure economic loss. The Court of Appeal rejected this submission
    in relation to the cost of repairs carried out in 1980 on the
    ground that D. & F. Estates were liable to Mr. and Mrs. Tillman
    to carry out the repairs, but accepted it in relation to the cost of
    future remedial works not yet carried out, although they assumed
    the factual premise, which they did not think it open to Wates to
    challenge, that the remaining defective plaster represented a
    continuing risk of personal injury.

    The plaintiffs now appeal by leave of your Lordships' House.

    - 3 -

    In relation to both issues, it is instructive and, I think,
    necessary to consider two developments of the law in relation to a
    builder's liability in tort for defective premises which have been
    effected on the one hand by statute and on the other by judicial
    development of the law by the adaptation and application of
    common law principles to situations to which they had not
    previously been applied. Both these developments have taken place
    since 1970. Both have effected far-reaching changes in the law,
    at all events as it had been supposed to be before 1970. But the
    two developments have been markedly different in their scope and
    effect. The statutory development enacted by the Defective
    Premises Act 1972 effected clear and precise changes in the law
    imposing certain specific statutory duties subject to carefully
    defined limitations and exceptions. This change did not, of course,
    operate retrospectively. The common law developments have
    effected changes in the law which inevitably lack the kind of
    precision attainable by statute though limits have had to be and
    are still being worked out by decisions of the courts in a spate of
    ensuing litigation, including the instant case, and since our
    jurisprudence knows nothing of the American doctrine of
    "prospective overruling" and the law once pronounced
    authoritatively by the courts here is deemed always to have been
    the law, the changes have full retrospective operation.

    The Act of 1972 was enacted following and substantially
    implementing the recommendations of a Law Commission report on
    "Civil Liability of Vendors and Lessors for Defective Premises"
    (Law Commission No. 40) dated 15 December 1970. The report
    followed the issue of two working papers and extensive
    consultations thereupon as explained in paragraph 5 to 8. The
    report makes this clear distinction between different kinds of
    defects in defective premises:

    "2. We have set out, therefore, to examine the liability of
    a vendor or lessor of defective premises both in contract
    and in tort; and it follows that we use the term 'defective'
    in two different senses. From the point of view of tort
    liability premises are defective only if they constitute a
    source of danger to the person or property of those who are
    likely to come on to them or to find themselves in their
    vicinity. In the contractual sense they are defective if
    their condition falls short of the standard of quality which
    the purchaser or lessee was entitled to expect in the
    circumstances. We refer to these different kinds of defects
    as dangerous defects and defects of quality respectively,
    where it is necessary to point the contrast."

    In Part B of the report, dealing with "defects of quality" in the
    sense defined in the passage quoted, the report records, at
    paragraph 14:

    "We are not aware of any substantial criticism of the
    present law as it applies to commercial or industrial
    premises. In such cases the parties are normally in a
    position to protect their own interests with the help of their
    professional advisers. The appropriate terms for inclusion in
    the contract in such cases are the subject of negotiation.
    Considerable disquiet has, however, been expressed in recent
    years as to the operation of the law in relation to the
    purchase of dwellings."

    - 4 -

    There follows a full consideration of the position of builders and
    others concerned in the construction of dwellings leading to a
    series of recommendations from which I quote two significant

    "26. Amendment of the law should be directed at improving
    the legal position of the purchasers of dwellings and should
    in our view be designed to achieve the following results:- (a)
    that a builder of a dwelling (i.e. anyone who provides a
    dwelling by constructing a new building or converting or
    enlarging an existing one) should be placed under a duty,
    similar to his common law obligations, to build properly and
    should not be able to contract out of this duty; (b) that this
    duty should be imposed not only on builders, but also on
    anyone else, in particular any sub-contractor or professional
    man, who takes on work for or in connection with the
    provision of a new dwelling . . .; (e) that a right of action
    in respect of faulty building of a dwelling should be
    available during a limited period - (i) if the builder builds to
    the order of a client, to that client; (ii) if the builder sells
    to a purchaser, to the purchaser; and (iii) in either event, to
    anyone who subsequently acquires an interest in the
    dwelling; (d) that those who (without being builders or
    otherwise concerned with work taken on for or in connection
    with the provision of the dwelling) arrange in the course of
    their business for the construction of dwellings for sale or
    letting to the public, should be placed under the same duty
    as builders towards persons who acquire interests in those
    dwellings. ... 32. Those persons on whom the obligations
    are to be imposed should not, however, be left at risk for
    an indefinite period. There should be a limit of time within
    which an action could be brought, running from the date
    when the work was completed."

    The long title of the Act of 1972 is

    "An Act to impose duties in connection with the provision
    of dwellings and otherwise to amend the law of England and
    Wales as to liability for injury or damage caused to persons
    through defects in the state of premises"

    and the following provisions of section 1 enact, with only minor
    changes of draftsmanship, provisions contained in the draft bill
    annexed to the Law Commission's report:

    "(1) A person taking on work for or in connection with the
    provision of a dwelling (whether the dwelling is provided by
    the erection or by the conversion or enlargement of a
    building) owes a duty - (a) if the dwelling is provided to the
    order of any person, to that person; and (b) without
    prejudice to paragraph (a) above, to every person who
    acquires an interest (whether legal or equitable) in the
    dwelling; to see that the work which he takes on is done in
    a workmanlike or, as the case may be, professional manner,
    with proper materials and so that as regards the work the
    dwelling will be fit for habitation when completed. . . (4)
    A person who - (a) in the course of a business which
    consists of or includes providing arranging for the provision

    - 5 -

    of dwellings or installations in dwellings; or (b) in the
    exercise of a power of making such provision or
    arrangements conferred by or by virtue of any enactment;
    arranges for another to take on work for or in connection
    with the provision of a dwelling shall be treated for the
    purposes of this section as included among the persons who
    have taken on the work. (5) Any cause of action in
    respect of a breach of the duty imposed by this section
    shall be deemed, for the purposes of the Limitation Act
    1939, the Law Reform (Limitation of Actions, &c.) Act 1954
    and the Limitation Act 1963, to have accrued at the time
    when the dwelling was completed, but if after that time a
    person who has done work for or in connection with the
    provision of the dwelling does further work to rectify the
    work he has already done, any such cause of action in
    respect of that further work shall be deemed for those
    purposes to have accrued at the time when the further work
    was finished."

    Section 2 of the Act then specifically excludes from the
    application of section 1 dwellings to which an "approved scheme"
    applies conferring rights in respect of defects when they are first
    let or sold for habitation. This limitation upon the new statutory
    duty does not follow directly from any specific recommendation in
    the Law Commission's report, although the report discusses the
    scheme operated by the National House-Builders Registration
    Council and it was presumably such schemes as this that
    Parliament contemplated might receive the approval of the
    Secretary of State under section 2, conferring exemption from
    liability for breach of statutory duty under section 1.

    Between the date of the Law Commission's report and the
    passing of the Act of 1972 the courts were concerned with the
    first of a series of cases relating directly to the liability in tort
    of local authorities for the negligent exercise of their powers
    under the Public Health Act 1936 or other parallel legislation in
    respect of defects in premises erected in contravention of building
    byelaws, but also indirectly with the liability in tort of the builder
    himself. This was Dutton v. Bognor Regis Urban District Council
    [1971] 2 All E.R. 1003; [1972] 1 Q.B. 373 decided by Cusack J. at
    first instance in March 1971 and by the Court of Appeal in
    December 1971, the very month in which the Bill which became
    the Act of 1972 was introduced into the House of Commons. The
    case related to a house with defective foundations which settled
    and cracked. The aspect of the judgments relevant for present
    purposes is that concerned with the liability of the builder, had he
    been sued. Referring to the application of the principle of
    Donoghue v. Stevenson [1932] AC 562 to the liability of a builder
    in tort for injury caused by dangerous defects in a building, Lord
    Denning M.R. said in a well known passage [1972] 1 Q.B. 373, 393-

    "The distinction between chattels and real property is quite
    unsustainable. If the manufacturer of an article is liable to
    a person injured by his negligence, so should the builder of
    a house be liable. After the lapse of 30 years this was
    recognised. In Gallagher v. N. McDowell Ltd. [1961] N.L
    26, Lord MacDermott C.J. and his colleagues in the
    Northern Ireland Court of Appeal held that a contractor who

    - 6 -

    built a house negligently was liable to a person injured by
    his negligence. This was followed by Nield J. in Sharpe v.
    E. T. Sweeting & Son Ltd.
    [1963] 1 W.L.R. 665. But the
    judges in those cases confined themselves to cases in which
    the builder was only a contractor and was not the owner of
    the house itself. When the builder is himself the owner,
    they assumed that Bottomley v. Bannister [1932] 1 K.B. 458
    was still authority for exempting him from liability for
    negligence. There is no sense in maintaining this
    distinction. It would mean that a contractor who builds a
    house on another's land is liable for negligence in
    constructing it, but that a speculative builder, who buys land
    and himself builds houses on it for sale, and is just as
    negligent as the contractor, is not liable. That cannot be
    right. Each must be under the same duty of care and to
    the same persons."

    This view of the law has, of course, never been doubted since.
    But the presently relevant passage in the judgment is that headed
    "Economic Loss," at p. 396, which reads:

    "Mr. Tapp [for the council] submitted that the liability of
    the council would, in any case, be limited to those who
    suffered bodily harm: and did not extend to those who only
    suffered economic loss. He suggested, therefore, that
    although the council might be liable if the ceiling fell down
    and injured a visitor, they would not be liable simply
    because the house was diminished in value. He referred to
    the recent case of S.C.M. (United Kingdom) Ltd, v. W. J.
    Whittall & Son Ltd.
    [1971] 1 Q.B. 337. I cannot accept this
    submission. The damage done here was not solely economic
    loss. It was physical damage to the house. If Mr. Tapp's
    submission were right, it would mean that if the inspector
    negligently passes the house as properly built and it
    collapses and injures a person, the council are liable: but if
    the owner discovers the defect in time to repair it - and he
    does repair it - the council are not liable. That is an
    impossible distinction. They are liable in either case. I
    would say the same about the manufacturer of an article.
    If he makes it negligently, with a latent defect (so that it
    breaks to pieces and injures someone), he is undoubtedly
    liable. Suppose that the defect is discovered in time to
    prevent the injury. Surely he is liable for the cost of

    Referring to the issue of economic loss, Sachs L.J. said at pp.

    In the instant case there is ample evidence of physical
    damage having occurred to the property. But it has been
    argued that this damage is on analysis the equivalent of a
    diminution of the value of the premises and does not rank
    for consideration as physical injury. Mr. Tapp found himself
    submitting that if, for instance, the relevant defect had
    been in the ceiling of a room, and if it fell on somebody's
    head or on to the occupier's chattels and thus caused
    physical damage, then (subject of course to his other points
    failing) there could be a cause of action in negligence, but
    not if it fell on to a bare floor and caused no further

    - 7 -

    damage. Apparently in the former case damages would be
    limited so as to exclude repairs to the ceiling: in the latter
    case there would be no cause of action at all. That subtle
    line of argument failed to attract me and would lead to an
    unhappily odd state of the law."

    Stamp L.J., although he expressed no concluded opinion,
    indicated a significantly different approach to the liability of the
    builder in the following passage, at pp.414-415

    "I now come to consider the submission advanced by Mr.
    Tapp to the effect that it would be an extension of the law
    to hold that the particular injury suffered by the plaintiff is
    an injury for which damages may be recovered. 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 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 the
    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."

    The next important decision is that of the New Zealand
    Court of Appeal in Bowen v. Paramount Builders (Hamilton) Ltd.
    [1977] 1 N.Z.L.R. 394. This was another case of defective
    foundations. The defendant builders had erected a building
    comprising two flats under contract with the first owner who sold
    it to the plaintiff. The plaintiff sued the builders for negligence
    in failing to provide adequate foundations. The building had
    settled and cracked. Remedial work was proposed to be
    undertaken to prevent further subsidence and to restore the
    building as far as possible, but it was impossible to eliminate the
    sag in the building so as to restore it fully to its original
    condition. Speight J. had dismissed the action, saying [1975] 2
    N.Z.L.R. 546, 555-556:

    - 8 -

    "It is a claim for the diminished value of the article, as for
    example, if the lady in Donoghue v. Stevenson had sued for
    damages for inferior quality ginger beer. The claim for
    such a defect in the quality of an article purchased is an
    action in contract not in tort and privity of contract still
    remains an essential part of that concept."

    The Court of Appeal took a different view. Richmond P.,
    although dissenting on the facts, expressed an opinion on the
    applicable law with which both Woodhouse and Cooke JJ. agreed.
    He said, at pp. 410-411:

    "Does damage to the house itself give rise to a cause of
    As I have already said, I agree with Speight J. that
    the principles laid down in Donoghue v. Stevenson apply to a
    builder erecting a house under a contract with the owner.
    He is under a duty of care not to create latent sources of
    physical danger to the person or property of third persons
    whom he ought reasonably to foresee as likely to be
    affected thereby. If the latent defect causes actual
    physical damage to the structure of the house then I can
    see no reason in principle why such damage should not give
    rise to a cause of action, at any rate if that damage occurs
    after the house has been purchased from the original owner.
    This was clearly the view of Lord Denning M.R. and of
    Sachs L.J. in Dutton v. Bognor Regis Urban District Council
    [1972] 1 Q.B. 373, 396, 403-404. In the field of products
    liability this has long been the law in the United States: see
    Prosser's Law of Torts, 4th ed., p. 665, s. 101, and
    Quackenbush v. Ford Motor Co. (1915) 167 App.Div. 433; 153
    N.Y.S. 131. For the purposes of the present case it is not
    necessary to deal with the question of ‘pure economic loss,
    that is to say economic loss which is not associated with a
    latent defect which causes or threatens physical harm to the
    structure itself. What is the correct measure of damages in
    the present case?
    As earlier explained, it has not been
    feasible in the present case to raise the building in such a
    way as to get rid of the sag which has occurred in the
    structure, and at the same time to strengthen the
    subfoundations. The proposed alterations are designed: (a)
    to reduce the risk of further subsidence by getting rid of
    the weight of the concrete block wall dividing the two
    units; (b) to restore the appearance of the house as far as
    possible; and

    (c) to put doors and windows into proper working
    condition. As to (a), when a defect has actually caused

    structural damage to a building it must be proper for the
    owner not only to repair the damage but also to take
    reasonable steps to prevent further damage, rather than wait
    for that damage to occur. In some cases this may give rise
    to the question whether some credit ought not to be given
    to the builder for betterment but no such question arises in
    the present case. As to (b), I can see no reason why the
    Bowens should not be able to claim for the cost of
    alterations carried out to improve the appearance of the
    building in circumstances where it is not feasible to raise
    the building in such a way as to eliminate the sag in the
    structure. Finally, there can, I think, be no question as to

    - 9 -

    (c). These repairs are obviously necessary. . . . Apart from
    the actual cost of the alterations, there is a sum of $2,000
    claimed as depreciation or diminution in value. This sum
    represents the difference between the market value of the
    property after all repairs are done and the market value had
    there been no subsidence. This claim, in my opinion, should
    be allowed. In one sense it can be described as economic
    loss, but it is economic loss directly and immediately
    connected with the structural damage to the building and as
    such is properly recoverable."

    Anns v. Merton London Borough Council [1978] AC 728 was
    again a case of defective foundations, but, like Dutton's case, one
    in which the only defendant was the local authority so that the
    scope of the builder's duty of care and the measure of damages
    for any breach of that duty were not directly in issue. Lord
    Wilberforce, with whose speech Lord Diplock, Lord Simon of
    Glaisdale and Lord Russell of Killowen agreed, dealt with the
    position of the builder and the damages recoverable in the
    following passage, at pp. 758-760:

    "The position of the builder. I agree with the majority in
    the Court of Appeal in thinking that it would be
    unreasonable to impose liability in respect of defective
    foundations upon the council, if the builder, whose primary
    fault it was, should be immune from liabilty. So it is
    necessary to consider this point, although it does not
    directly arise in the present appeal. If there was at one
    time a supposed rule that the doctrine of Donoghue v.
    [1932] AC 562 did not apply to realty, there is
    no doubt under modern authority that a builder of defective
    premises may be liable in negligence to persons who thereby
    suffer injury: see Gallagher v. N. McDowell Ltd. [1961] N.I.
    26 per Lord MacDermott C.J. - a case of personal injury.
    Similar decisions have been given in regard to architects -
    (Clayton v. Woodman & Son (Builders) Ltd. [1962] 2 Q.B. 533
    and Clay v. A. J. Crump & Sons Ltd. [1964] 1 Q.B. 533).
    Gallagher's case expressly leaves open the question whether
    the immunity against action of builder owners, established
    by older authorities (e.g. Bottomley v. Bannister [1932] 1
    K.B. 458) still survives. That immunity, as I understand it,
    rests partly upon a distinction being made between chattels
    and real property, partly upon the principle of 'caveat
    emptor' or, in the case where the owner leases the
    property, on the proposition 'for, fraud apart, there is no
    law against letting a tumbledown house': see Robbins v.
    Jones (1863) 15 C.B.N.S. 221, 240 per Erie C.J. But leaving
    aside such cases as arise between contracting parties, when
    the terms of the contract have to be considered (see Voli v.
    Inglewood Shire Council
    (1963) 110 C.L.R. 74, 85 per
    Windeyer J.), I am unable to understand why this principle
    or proposition should prevent recovery in a suitable case by
    a person, who has subsequently acquired the house, upon the
    principle of Donoghue v. Stevenson: the same rules should
    apply to ail careless acts of a builder: whether he happens
    also to own the land or not. I agree generally with the
    conclusions of Lord Denning M.R. on this point in Dutton v.
    Bognor Regis Urban District Council
    [1972] 1 Q.B. 373, 392-
    394. In the alternative, since it is the duty of the builder

    - 10 -

    (owner or not) to comply with the byelaws, I would be of
    opinion that an action could be brought against him, in
    effect, for breach of statutory duty by any person for whose
    benefit or protection the byelaw was made. So I do not
    think that there is any basis here for arguing from a
    supposed immunity of the builder to immunity of the
    council. Nature of the damages recoverable and arising of
    the cause of action. There are many questions here
    do not directly arise at this stage and which may never
    arise if the actions are tried. But some conclusions are
    necessary if we are to deal with the issue as to limitation.
    The damages recoverable include all those which foreseeably
    arise from the breach of the duty of care which, as regards
    the council, I have held to be a duty to take reasonable
    care to secure compliance with the byelaws. 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; for the whole purpose of the byelaws in requiring
    foundations to be of a certain standard is to prevent
    damage arising from weakness of the foundations which is
    certain to endanger the health or safety of occupants. To
    allow recovery for such damage to the house follows, in my
    opinion, from normal principle. If classification is required,
    the relevant damage is in my opinion material, physical
    damage, and what is recoverable is the amount of
    expenditure necessary to restore the dwelling to a condition
    in which it is no longer a danger to the health or safety of
    persons occupying and possibly (depending on the
    circumstances) expenses arising from necessary displacement.
    On the question of damages generally I have derived much
    assistance from the judgment (dissenting on this point, but
    of strong persuasive force) of Laskin J. in the Canadian
    Supreme Court case of Rivtow Marine Ltd, v. Washington
    Iron Works
    [1973] 6 W.W.R. 692, 715 and from the
    judgments of the New Zealand Court of Appeal (furnished by
    courtesy of that court) in Bowen v. Paramount Builders
    (Hamilton) Ltd.
    [1975] 2 N.Z.L.R. 5*6. When does the cause
    of action arise?
    We can leave aside cases of personal
    injury or damage to other property as presenting no
    difficulty. It is only the damage for the house which
    requires consideration. In my respectful opinion the Court
    of Appeal was right when, in Sparham-Souter v. Town and
    Country Developments (Essex) Ltd.
    [1976] Q.B. 858 It
    abjured the view that the cause of action arose immediately
    upon delivery, i.e., conveyance of the defective house. It
    can only arise when the state of the building is such that
    there is present or imminent danger to the health or safety
    of persons occupying it. We are not concerned at this stage
    with any issue relating to remedial action nor are we called
    upon to decide upon what the measure of the damages
    should be; such questions, possibly very difficult in some
    cases, will be for the court to decide."

    It is particularly to be noted that Lord Wilberforce founded
    his view of the builder's liability on the alternative grounds of
    negligence and breach of statutory duty and that his opinion as to
    the nature of the damages recoverable is strictly applicable to the
    liability of the local authority, and perhaps also to the liability of

    - 11 -

    the builder for breach of duty under the byelaws, but is obiter in
    relation to the builder's liability for the common law tort of
    negligence. It is, moreover, difficult to understand how a builder's
    liability, whatever its scope, in respect of a dangerous defect in a
    building can arise only when there is imminent danger to the
    health and safety of occupiers. In any event the last sentence in
    the passage quoted leaves open the critical question as to the
    measure of damages in relation to remedial action.

    Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B.
    554, to which I was a party, is a decision with unusual features.
    A house had been built on a site negligently selected by developers
    and builders acting together which was so inherently unsafe that,
    following a predictable landslide, the house was liable to fall down
    and was a continuing danger to its occupants and others. The
    house had become valueless and represented a danger which could
    effectively only be removed by demolition. But the liability in
    tort of the developers was held to arise from breach of a duty
    corresponding to that which they had assumed to the plaintiffs in
    contract. This I regard as of no present relevance. Liability of
    the builders in tort, however, for the plaintiffs' loss of the value
    of the house is one which I would now question for reasons I will
    later explain. My own short extemporary judgment, which treats
    the issue of the builder's liability in damages and the fundamental
    question raised by Stamp L.J. in Dutton v. Bognor Regis Urban
    District Council
    [1972] 1 Q.B. 373, 414-415 as settled by the
    speech of Lord Wilberforce in Anns v. Merton London Borough
    Council [1978] AC 728, 758-760 was, I now think, unsound.

    My Lords, I do not intend to embark on the daunting task
    of reviewing the wealth of other, mostly later, authority which
    bears, directly or indirectly, on the question whether the cost of
    making good defective plaster in the instant case is irrecoverable
    as economic loss, which seems to me to be the most important
    question for determination in the present appeal. My abstention
    may seem pusillanimous, but it stems from a recognition that the
    authorities, as it seems to me, speak with such an uncertain voice
    that, no matter how searching the analysis to which they are
    subject, they yield no clear and conclusive answer. It is more
    profitable, I believe, to examine the issue in the light of first

    However, certain authorities are of prime importance and
    must be considered. The decision of your Lordships' House in
    Junior Books Ltd, v. Veitchi Co. Ltd. [1983] AC 520 has been
    analysed in many subsequent decisions of the Court of Appeal. I
    do not intend to embark on a further such analysis. The consensus
    of judicial opinion, with which I concur, seems to be that the
    decision of the majority is so far dependent upon the unique,
    albeit non-contractual, relationship between the pursuer and the
    defender in that case and the unique scope of the duty of care
    owed by the defender to the pursuer arising from that relationship
    that the decision cannot be regarded as laying down any principle
    of general application in the law of tort or delict. The dissenting
    speech of Lord Brandon of Oakbrook on the other hand enunciates
    with cogency and clarity principles of fundamental importance
    which are clearly applicable to determine the scope of the duty of
    care owed by one party to another in the absence, as in the
    instant case, of either any contractual relationship or any such

    - 12 -

    uniquely proximate relationship as that on which the decision of
    the majority in Junior Books was founded. Lord Brandon said, at
    p. 549:

    "My Lords, it appears to me clear beyond doubt that, there
    being no contractual relationship between the respondents
    and the appellants in the present case, the foundation, and
    the only foundation, for the existence of a duty of care
    owed by the defendants 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. 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. 581-582 with regard to the
    statements of law of Brett M.R. in Heaven v. Fender (1883)
    11 Q.B.D. 503, 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."

    Later, at pp. 550-551, Lord Brandon, having referred to the
    well known two-stage test of the existence of a duty of care
    propounded by Lord Wilberforce in Anns' case, at pp. 751-752,
    asked himself, at the second stage, the question "whether there
    are any considerations which ought, inter alia, to limit the scope
    of the duty which exists." He continued, at pp..551-552:

    "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 appellants to the respondents 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

    - 13 -

    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 respondents for the more
    restricted scope of such duty put forward by the appellants.
    The effect of accepting the respondents 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. 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 respondents 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 subcontractors such as the appellants in the
    present case, it could hardly be the standard prescribed by
    the contract between the subcontractors 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."

    The reasoning in these passages receives powerful support
    from the unanimous decision of the Supreme Court of the United
    States of America in East River Steamship Corporation v.
    Transamerica Delaval Inc. (1986) 106 S.Ct. 2295.
    Charterers of

    - 14 -

    supertankers claimed damages from turbine manufacturers resulting
    from alleged design and manufacturing defects which caused the
    supertankers to malfunction while on the high seas. The court
    held, inter alia, that

    "whether stated in negligence or strict liability, no products-
    liability claim lies in admiralty when a commercial party
    alleges injury only to the product itself resulting in purely
    economic loss."

    Blackmun J., delivering the judgment of the court said, at p. 2300-

    "The intriguing question whether injury to a product itself
    may be brought in tort has spawned a variety of answers.
    At one end of the spectrum, the case that created the
    majority land-based approach, Seely v. White Motor Co.,
    (1965) 63 Cal.2d 9; 45 Cal.Rptr. 17; 403 P.2d 145 (defective
    truck), held that preserving a proper role for the law of
    warranty precludes imposing tort liability if a defective
    product causes purely monetary harm. See also Jones &
    Laughlin Steel Corporation v. Johns-Manville Sales
    Corporation, 626 F.2d 280, 287 and n. 13 (CA3 1980) (citing
    cases). At the other end of the spectrum is the minority
    land-based approach, whose progenitor, Santor v. A. and M.
    Karagheusian, Inc. (1965) M N.J. 52, 66-67; 207 A.2d 305,
    312-313 (marred carpeting), held that a manufacturer's duty
    to make nondefective products encompassed injury to the
    product itself, whether or not the defect created an
    unreasonable risk of harm. See also LaCrosse v. Schubert,
    (1976) 72 Wis.2d 38, 44-45; 240 N.W.2d 124, 127-128. The
    courts adopting this approach, including the majority of the
    Courts of Appeals sitting in admiralty that have considered
    the issue, e.g., Emerson G. M. Diesel Inc. v. Alaskan
    732 F.2d 1468 (CA9 1984), find that the safety
    and insurance rationales behind strict liability apply equally
    where the losses are purely economic. These courts reject
    the Seely approach because they find it arbitrary that
    economic losses are recoverable if a plaintiff suffers bodily
    injury or property damage, but not if a product injures
    itself. They also find no inherent difference between
    economic loss and personal injury or property damage,
    because all are proximately caused by the defendant's
    conduct. Further, they believe recovery for economic loss
    would not lead to unlimited liability because they think a
    manufacturer can predict and insure against product failure.
    See Emerson G. M. Diesel Inc. v. Alaskan Enterprise, at p.
    1474. Between the two poles fall a number of cases that
    would permit a products-liability action under certain
    circumstances when a product injures only itself. These
    cases attempt to differentiate between 'the disappointed
    users . . . and the endangered ones,' Russell v. Ford Motor
    (1978) 281 Or. 587, 595; 575 P.2d 1383, 1387, and
    permit only the latter to sue in tort. The determination
    has been said to turn on the nature of the defect, the type
    of risk, and the manner in which the injury arose. See
    Pennsylvania Glass Sand Corporation v. Caterpillar Tractor
    Co., 652 F.2d 1165, 1173 (CA3 1981) (relied on by the Court
    of Appeals in this case). The Alaska Supreme Court allows

    - 15 -

    a tort action if the defective product creates a situation
    potentially dangerous to persons or other property, and loss
    occurs as a proximate result of that danger and under
    dangerous circumstances. Northern Power & Engineering
    Corporation v. Caterpillar Tractor Co. (1981) 623
    P.2d 324,

    We find the intermediate and minority land-based
    positions unsatisfactory. The intermediate positions, which
    essentially turn on the degree of risk, are too indeterminate
    to enable manufacturers easily to structure their business
    behaviour. Nor do we find persuasive a distinction that
    rests on the manner in which the product is injured. We
    realize that the damage may be qualitative, occurring
    through gradual deterioration or internal breakage. Or it
    may be calamitous. Compare Morrow v. New Moon Homes
    Inc., 548 P.2d 279 (Alaska 1976), with Cloud v. Kit
    Manufacturing Co.,
    563 P.2d 248, 251 (Alaska 1977). But
    either way, since by definition no person or other property
    is damaged, the resulting loss is purely economic. Even
    when harm to the product itself occurs through an abrupt,
    accident-like event, the resulting loss due to repair costs,
    decreased value, and lost profits is essentially the failure of
    the purchaser to receive the benefit of its bargain -
    traditionally the core concern of contract law. See E._
    Farnsworth, Contracts (1982), para. 12.8, pp. 839-840. We
    also decline to adopt the minority land-based view espoused
    by Santor and Emerson. Such cases raise legitimate
    questions about the theories behind restricting products
    liability, but we believe that the countervailing arguments
    are more powerful. The minority view fails to account for
    the need to keep products liability and contract law in
    separate spheres and to maintain a realistic limitation on

    This appears to undermine the earlier American authorities
    referred to by Richmond P. in the New Zealand case of Bowen v.
    Paramount Builders (Hamilton) Ltd.
    (1977) 1 N.Z.L.R. 394, 410.
    The opinion of Lord Brandon of Oakbrook in Junior Books Ltd, v.
    Veitchi Co. Ltd.
    [1983] 1 AC 520 and that expressed by the
    Supreme Court of the United States of America are entirely in
    line with the majority decision of the Supreme Court of Canada in
    Rivtow Marine Ltd, v. Washington Iron Works [1973] 6 W.W.R. 692
    that the damages recoverable from the manufacturer by the hirers
    of a crane which was found to have a defect which made it
    unsafe to use did not include the cost of repairing the defect.

    These principles are easy enough to comprehend and
    probably not difficult to apply when the defect complained of is in
    a chattel supplied complete by a single manufacturer. If the
    hidden defect in the chattel is the cause of personal injury or of
    damage to property other than the chattel itself, the manufacturer
    is liable. But if the hidden defect is discovered before any such
    damage is caused, there is no longer any room for the application
    of the Donoghue v. Stevenson [1932] AC 562 principle. The
    chattel is now defective in quality, but is no longer dangerous. It
    may be valueless or it may be capable of economic repair. In
    either case the economic loss is recoverable in contract by a
    buyer or hirer of the chattel entitled to the benefit of a relevant

    - 16 -

    warranty of quality, but is not recoverable in tort by a remote
    buyer or hirer of the chattel.

    If the same principle applies in the field of real property to
    the liability of the builder of a permanent structure which is
    dangerously defective, that liability can only arise if the defect
    remains hidden until the defective structure causes personal injury
    or damage to property other than the structure itself. If the
    defect is discovered before any damage is done, the loss sustained
    by the owner of the structure, who has to repair or demolish it to
    avoid a potential source of danger to third parties, would seem to
    be purely economic. Thus, if I acquire a property with a
    dangerously defective garden wall which is attributable to the bad
    workmanship of the original builder, it is difficult to see any basis
    in principle on which I can sustain an action in tort against the
    builder for the cost of either repairing or demolishing the wall.
    No physical damage has been caused. All that has happened is
    that the defect in the wall has been discovered in time to prevent
    damage occurring. I do not find it necessary for the purpose of
    deciding the present appeal to express any concluded view as to
    how far, if at all, the ratio decidendi of Anns v. Merton London
    Borough Council
    [1978] AC 728 involves a departure from this
    principle establishing a new cause of action in negligence against a
    builder when the only damage alleged to have been suffered by the
    plaintiff is the discovery of a defect in the very structure which
    the builder erected.

    My example of the garden wall, however, is that of a very
    simple structure. I can see that more difficult questions may
    arise in relation to a more complex structure like a dwelling-
    house. One view would be that such a structure should be treated
    in law as a single indivisible unit. On this basis, if the unit
    becomes a potential source of danger when a hitherto hidden
    defect in construction manifests itself, the builder, as in the case
    of the garden wall, should not in principle be liable for the cost
    of remedying the defect. It is for this reason that I now question
    the result, as against the builder, of the decision in Batty v.
    Metropolitan Property Realisations Ltd
    [1978] Q.B. 554.

    However, ! can see that it may well be arguable that in the
    case of complex structures, as indeed possibly in the case of
    complex chattels, one element of the structure should be regarded
    for the purpose of the application of the principles under
    discussion as distinct from another element, so that damage to one
    part of the structure caused by a hidden defect in another part
    may qualify to be treated as damage to "other property," and
    whether the argument should prevail may depend on the
    circumstances of the case. It would be unwise and it is
    unnecessary for the purpose of deciding the present appeal to
    attempt to offer authoritative solutions to these difficult problems
    in the abstract. I should wish to hear fuller argument before
    reaching any conclusion as to how far the decision of the New
    Zealand Court of Appeal in Bowen v. Paramount Builders
    (Hamilton) Ltd,
    should be followed as a matter of English law. I
    do not regard Anns v. Merton London Borough Council as resolving
    that issue.

    In the instant case the only hidden defect was in the
    plaster. The only item pleaded as damage to other property was

    - 17 -

    "cost of cleaning carpets and other possessions damaged or dirtied
    by falling plaster; £50." Once it appeared that the plaster was
    loose, any danger of personal injury or of further injury to other
    property could have been simply avoided by the timely removal of
    the defective plaster. The only function of plaster on walls and
    ceilings, unless it is itself elaborately decorative, is to serve as a
    smooth surface on which to place decorative paper or paint.
    Whatever case there may be for treating a defect in some part of
    the structure of a building as causing damage to "other property"
    when some other part of the building is injuriously affected, as for
    example cracking in walls caused by defective foundations, it
    would seem to me entirely artificial to treat the plaster as
    distinct from the decorative surface placed upon it. Even if it
    were so treated, the only damage to "other property" caused by
    the defective plaster would be the loss of value of the existing
    decorations occasioned by the necessity to remove loose plaster
    which was in danger of falling. When the loose plaster in flat 37
    was first discovered in 1980, the flat was in any event being

    It seems to me clear that the cost of replacing the
    defective plaster itself, either as carried out in 1980 or as
    intended to be carried out in future, was not an item of damage
    for which the builder of Chelwood House could possibly be made
    liable in negligence under the principle of Donoghue v. Stevenson
    or any legitimate development of that principle. To make him so
    liable would be to impose upon him for the benefit of those with
    whom he had no contractual relationship the obligation of one who
    warranted the quality of the plaster as regards materials,
    workmanship and fitness for purpose. I am glad to reach the
    conclusion that this is not the law, if only for the reason that a
    conclusion to the opposite effect would mean that the courts, in
    developing the common law, had gone much farther than the
    legislature were prepared to go in 1972, after comprehensive
    examination of the subject by the Law Commission, in making
    builders liable for defects in the quality of their work to all who
    subsequently acquire interests in buildings they have erected. The
    statutory duty imposed by the Act of 1972 was confined to
    dwelling-houses and limited to defects appearing within six years.
    The common law duty, if it existed, could not be so confined or
    so limited. I cannot help feeling that consumer protection is an
    area of law where legislation is much better left to the

    It follows from these conclusions that, even if Wates
    themselves had been responsible for the plaster-work in flat 37,
    the damages recoverable from them by D. & F. Estates would
    have been a trivial sum and Mr. and Mrs. Tillman could have
    established no claim for damages for disturbance. But, as already
    indicated, the Court of Appeal's primary ground for allowing
    Wates appeal was that they had properly employed competent sub-
    contractors to do the plaster work for whose negligence they were
    not liable, and it is to this issue that I must now turn. The
    submission in support of the appeal was put in three ways which
    amount, as it seems to me, to three alternative formulations of
    what is, in essence, the same proposition of law. Expressed in
    summary form the three formulations are: (i) that Wates were
    vicariously liable for the negligence of their sub-contractor; (ii)
    that Wates as main contractors responsible for building Chelwood

    - 18 -

    House owed a duty to future lessees and occupiers of flats to take
    reasonable care that the building should contain no hidden defects
    of the kind which might cause injury to persons or property and
    that this duty could not be delegated; (iii) that Wates as main
    contractors owed a duty of care to future lessees and occupiers of
    flats to supervise their sub-contractors to ensure that the sub-
    contracted work was not negligently performed so as to cause such

    It is trite law that the employer of an independent
    contractor is, in general, not liable for the negligence or other
    torts committed by the contractor in the course of the execution
    of the work. To this general rule there are certain well-
    established exceptions or apparent exceptions. Without
    enumerating them it is sufficient to say that it was accepted by
    Mr. Fernyhough Q.C. on behalf of the present appellants that the
    instant case could not be accommodated within any of the
    recognised and established categories by which the exceptions are
    classified. But it has been rightly said that the so-called

    "are not true exceptions (at least so far as the theoretical
    nature of the employer's liability is concerned) for they are
    dependent upon a finding that the employer is, himself, in
    breach of some duty which he personally owes to the
    plaintiff. The liability is thus not truly a vicarious liability
    and is to be distinguished from the vicarious liability of a
    master for his servant." (see Clerk & Lindsell on Torts,
    15th ed. (1982), para. 3-37, p. 185).

    Herein lies Mr. Fernyhough's real difficulty. If Wates are to be
    held liable for the negligent workmanship of their sub-contractors
    (assumed for this purpose to result in dangerously defective work)
    it must first be shown that in the circumstances they had assumed
    a personal duty to all the world to ensure that Chelwood House
    should be free of dangerous effects. This was the assumption upon
    which the judge proceeded when he said: 'The duty of care itself
    is of course not delegable." Whence does this non-delegable duty
    arise? Mr. Fernyhough submits that it is a duty undertaken by
    any main contractor in the building industry who contracts to
    erect an entire building. I cannot agree because I cannot
    recognise any legal principle to which such an assumption of duty
    can be related. Just as I may employ a building contractor to
    build me a house, so may the building contractor, subject to the
    terms of my contract with him, in turn employ another to
    undertake part of the work. If the mere fact of employing a
    contractor to undertake building work automatically involved the
    assumption by the employer of a duty of care to any person who
    may be injured by a dangerous defect in the work caused by the
    negligence of the contractor, this would obviously lead to absurd
    results. If the fact of employing a contractor does not involve
    the assumption of any such duty by the employer, then one who
    has himself contracted to erect a building assumes no such liability
    when he employs an apparently competent independent sub-
    contractor to carry out part of the work for him. The main
    contractor may, in the interests of the proper discharge for his
    own contractual obligations, exercise a greater or lesser degree of
    supervision over the work done by the sub-contractor. If in the
    course of supervision the main contractor in fact comes to know

    - 19 -

    that the sub-contractor's work is being done in a defective and
    foreseeably dangerous way and if he condones that negligence on
    the part of the sub-contractor, he will no doubt make himself
    potentially liable for the consequences as a joint tortfeasor. But
    the judge made no finding against Wates of actual knowledge and
    his finding that they "ought to have known" what the
    manufacturer's instructions were depended upon and was vitiated
    by his earlier misdirection that Wates owed a duty of care to
    future lessees of Chelwood House flats in relation to their sub-
    contractor's work.

    Mr. Fernyhough relied on an unreported decision of Judge
    Edgar Fay Q.C. in Queensway Discount Warehouses v. Graylaw
    Properties Ltd.,
    19 February 1982 and upon the decision of Judge
    Sir William Stabb Q.C. in Cynat Products Ltd, v. Landbuild
    (Investment and Property) Ltd. [1984] 3 All E.R. 513.
    In so far as
    the former decision relied on any general principle of law that a
    main contractor is liable to a third party who suffers damage from
    the negligently defective work done by his sub-contractor, I can
    only say, as already indicated, that I can find no basis in law to
    support any such principle. The relevant issue in the latter case,
    as in Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B.
    554 in relation to the liability of the developer defendants, was
    whether the defendants' admitted contractual liability was matched
    by a parallel liability in tort. In both cases the issue was of
    importance only as bearing upon the liability of insurers to
    indemnify the defendants. I do not find authorities directed to
    that question of any assistance in determining the scope of the
    duty of care which one person owes to another entirely
    independently of any contractual relationship on the basis of the
    Donoghue v. Stevenson [1932] AC 562 principle.

    More important is the decision of the New Zealand Court of
    Appeal in Mount Albert Borough Council v. Johnson [1979] 2
    N.Z.L.R. 234. This was another case of the purchaser of a flat
    suffering damage due to the subsidence of a building erected on
    inadequate foundations. One of the issues was whether the
    plaintiff was entitled to recover damages against the development
    company which had employed independent contractors to erect the
    building. Delivering the judgment of Somers J. and himself, Cooke
    J. said, at pp. 240 241:

    "In the instant type of case a development company acquires
    land, subdivides it, and has homes built on the lots for sale
    to members of the general public. The company's interest
    is primarily a business one. For that purpose it has
    buildings put up which are intended to house people for
    many years and it makes extensive and abiding changes in
    the landscape. It is not a case of a landowner having a
    house built for his own occupation initially - as to which we
    would say nothing except that Lord Wilberforce's two-stage
    approach to duties of care in Anns may prove of guidance
    on questions of non-delegable duty also. There appears to
    be no authority directly in point on the duty of such a
    development company. We would hold that it is a duty to
    see that proper care and skill are exercised in the building
    of the houses and that it cannot be avoided by delegation to
    an independent contractor."

    - 20 -

    As a matter of social policy this conclusion may be entirely
    admirable. Indeed, it corresponds almost precisely to the policy
    underlying the Law Commission's recommendations in paragraph 26
    of the report (Law Commission No. 40) to which I have already
    referred and which was implemented by section 1(1) and (4) of the
    Act of 1972. As a matter of legal principle, however, I can
    discover no basis on which it is open to the court to embody this
    policy in the law without the assistance of the legislature and it is
    again, in my opinion, a dangerous course for the common law to
    embark upon the adoption of novel policies which it sees as
    instruments of social justice but to which, unlike the legislature, it
    is unable to set carefully defined limitations.

    The conclusion I reach is that Wates were under no liability
    to the plaintiffs for damage attributable to the negligence of their
    plastering sub-contractor in failing to follow the instructions of the
    manufacturer of the plaster they were using, but that in any event
    such damage could not have included the cost of renewing the
    plaster. Accordingly I would dismiss the appeal with costs.


    My Lords,

    I have had the advantage of reading in draft the speeches
    prepared by my noble and learned friends Lord Bridge of Harwich
    and Lord Oliver of Aylmerton. I agree with them, and I too
    would dismiss this appeal.


    My Lords,

    I have had the advantage of reading in draft the speeches
    prepared by my noble and learned friends Lord Bridge of Harwich
    and Lord Oliver of Aylmerton. I agree with them, and I too
    would dismiss this appeal.


    My Lords,

    I have had the advantage of reading in draft the speech
    prepared by my noble and learned friend, Lord Bridge of Harwich,
    and I agree that the appeal should be dismissed for the reasons
    which he has given. In particular, I agree with his conclusion
    that, quite apart from the question of Wates liability for the
    negligent performance by their sub-contractors of the duties under
    the plastering sub-contract, the cost of replacing the defective
    plaster would, in any event, be irrecoverable.

    - 21 -

    It is, I think, clear that the decision of this House in Anns
    v. Merton London Borough Council
    [1978] AC 728 introduced, in
    relation to the construction of buildings, an entirely new type of
    product liability, if not, indeed, an entirely novel concept of the
    tort of negligence. What is not clear is the extent of the liability
    under this new principle. In the context of the instant appeal, the
    key passage from the speech of Lord Wilberforce in that case is
    that which commences at p. 759, and which has already been
    quoted by my noble and learned friend.

    A number of points emerge from this:

    1. The damage which gives rise to the action may be
      damage to the person or to property on the ordinary Donoghue v.
      principle. But it may be damage to the defective
      structure itself which has, as yet, caused no injury either to
      person or to other property, but has merely given rise to a risk of

    2. There may not even be "damage" to the structure. It
      may have been inherently defective and dangerous ab initio without
      any deterioration between the original construction and the
      perception of risk.

    3. The damage to or defect in the structure, if it is to give
      rise to a cause of action, must be damage of a particular kind,
      i.e. damage or defect likely to cause injury to health or - possibly
      - injury to other property (an extension arising only by implication
      from the approval by this House of the decision of the Court of
      Appeal in Dutton v. Bognor Regis Urban District Council [1972] 1
      Q.B. 373). "

    4. The cause of action so arising does not arise on delivery
      of the defective building or on the occurrence of the damage but
      upon the damage becoming a "present or imminent risk" to health
      or (semble) to property and it is for that risk that compensation is
      to be awarded.

    5. The measure of damage is at large but, by implication
      from the approval of the dissenting judgment in the Canadian case
      referred to (Rivtow Marine Ltd, v. Washington Iron Works [1973] 6
      W.W.R. 692), it must at least include the cost of averting the

    These propositions involve a number of entirely novel
    concepts. In the first place, in no other context has it previously
    been suggested that a cause of action in tort arises in English law
    for the defective manufacture of an article which causes no injury
    other than injury to the defective article itself. If I buy a
    secondhand car to which there has been fitted a pneumatic tyre
    which, as a result of carelessness in manufacture, is dangerously
    defective and which bursts, causing injury to me or to the car, no
    doubt the negligent manufacturer is liable in tort on the ordinary
    application of Donoghue v. Stevenson. But if the tyre bursts
    without causing any injury other than to itself or if I discover the
    defect before a burst occurs, I know of no principle upon which I
    can claim to recover from the manufacturer in tort the cost of
    making good the defect which, in practice, could only be the cost

    - 22 -

    of supplying and fitting a new tyre. That would be, in effect, to
    attach to goods a non-contractual warranty of fitness which would
    follow the goods into whosoever hands they came. Such a concept
    was suggested, obiter, by Lord Denning M.R. in Dutton's case, at
    p. 396, but it was entirely unsupported by any authority and is, in
    my opinion, contrary to principle.

    The proposition that damages are recoverable in tort for
    negligent manufacture when the only damage sustained is either an
    initial defect in or subsequent injury to the very thing that is
    manufactured is one which is peculiar to the construction of a
    building and is, I think, logically explicable only on the hypothesis
    suggested by my noble and learned friend, Lord Bridge of Harwich,
    that in the case of such a complicated structure the other
    constituent parts can be treated as separate items of property
    distinct from that portion of the whole which has given rise to the
    damage - for instance, in Anns' case, treating the defective
    foundations as something distinct from the remainder of the
    building. So regarded this would be no more than the ordinary
    application of the Donoghue v. Stevenson principle. It is true that
    in such a case the damages would include, and in some cases
    might be restricted to, the costs of replacing or making good the
    defective part, but that would be because such remedial work
    would be essential to the repair of the property which had been
    damaged by it.

    But even so there are anomalies. If that were the correct
    analysis, then any damage sustained by the building should ground
    an action in tort from the moment when it occurs. But Anns tells
    us - and, at any rate so far as the local authority was concerned,
    this was a ground of decision and not merely obiter - that the
    cause of action does not arise until the damage becomes a present
    or imminent danger to the safety or health of the occupants and
    the damages recoverable are to be measured, not by the cost of
    repairing the damage which has been actually caused by the
    negligence of the builder, but by the (possibly much more limited)
    cost of putting the building into a state in which it is no longer a
    danger to the health or safety of the occupants.

    It has, therefore, to be recognised that Anns introduced not
    only a new principle of a parallel common law duty in a local
    authority stemming from but existing alongside its statutory duties
    and conditioned by the purpose of those statutory duties, but also
    an entirely new concept of the tort of negligence in cases relating
    to the construction of buildings. The negligent builder is not
    answerable for all the reasonably foreseeable consequences of his
    negligence, but only for consequences of a particular type.
    Moreover, the consequence which triggers the liability is not, in
    truth, the damage to the building, qua damage, but the creation of
    the risk of apprehended damage to the safety of person or
    property. Take, for instance, the case of a building carelessly
    constructed in a manner which makes it inherently defective ab
    initio but where the defect comes to light only as a result, say, of
    a structural survey carried out several years later at the instance
    of a subsequent owner. What gives rise to the action is then not
    "damage" in any accepted sense of the word but the perception of
    possible but avoidable damage in the future. The logic of
    according the owner a remedy at that stage is illustrated by the
    dissenting judgment of Laskin J. in the Canadian case referred to

    - 23 -

    and it is this: if the plaintiff had been injured the negligent
    builder would undoubtedly have been liable on Donoghue v.
    principles. He has not been injured, but he has been
    put on notice to an extent sufficient to deprive himself of any
    remedy if he is now injured and he therefore suffers, and suffers
    only, the immediate economic loss entailed in preventing or
    avoiding the injury and the concomitant liability for it of the
    negligent builder which his own perception has brought to his
    attention. It is fair therefore that he should recover this loss,
    which is as much due to the fault of the builder as would have
    been the injury if it had occurred. Thus it has to be accepted
    either that the damage giving rise to the cause of action is pure
    economic loss not consequential upon injury to person or property -
    a concept not so far accepted into English law outside the Hedley
    type of liability (Hedley Byrne & Co. Ltd, v. Heller &
    Partners Ltd.
    [1964] AC 465) - or that there is a new species of
    the tort of negligence in which the occurrence of actual damage is
    no longer the gist of the action but is replaced by the perception
    of the risk of damage.

    I think that it has to be accepted that this involves an
    entirely new concept of the common law tort of negligence in
    relation to building cases. Its ambit remains, however, uncertain.
    So far as Anns' case was concerned with liability arising from
    breach of statutory duty, the liability of the builder was a matter
    of direct decision. No argument was advanced on behalf of the
    builder in that case, but it was an essential part of the rationale
    of the decision in relation to the liability of the local authority
    that there was a precisely parallel and co-existing liability in the
    builder. Moreover, it is, I think, now entirely clear that the
    vendor of a defective building who is also the builder enjoys no
    immunity from the ordinary consequences of his negligence in the
    course of constructing the building, but beyond this and so far as
    the case was concerned with the extent of or limitations on his
    liability for common law negligence divorced from statutory duty,
    Lord Wilberforce's observations were, I think, strictly obiter. My
    Lords, so far as they concern such liability in respect of damage
    which has actually been caused by the defective structure other
    than by direct physical damage to persons or to other property, I
    am bound to say that, with the greatest respect to their source, I
    find them difficult to reconcile with any conventional analysis of
    the underlying basis of liability in tort for negligence. A cause of
    action in negligence at common law which arises only when the
    sole damage is the mere existence of the defect giving rise to the
    possibility of damage in the future, which crystallizes only when
    that damage is imminent, and the damages for which are
    measured, not by the full amount of the loss attributable to the
    defect but by the cost of remedying it only to the extent
    necessary to avert a risk of physical injury, is a novel concept.
    Regarded as a cause of action arising not from common law
    negligence but from breach of a statutory duty, there is a logic in
    so limiting it as to conform with the purpose for which the
    statutory duty was imposed, that is to say, the protection of the
    public from injury to health or safety. But there is, on that
    footing, no logic in extending liability for a breach of statutory
    duty to cases where the risk of injury is a risk of injury to
    property only, nor, as it seems to me, is there any logic in
    importing into a pure common law claim in negligence against a
    builder the limitations which are directly related only to breach of

    - 24 -

    a particular statutory duty. For my part, therefore, I think the
    correct analysis, in principle, to be simply that, in a case where
    no question of breach of statutory duty arises, the builder of a
    house or other structure is liable at common law for negligence
    only where actual damage, either to person or to property, results
    in carelessness on his part in the course of construction. That the
    liability should embrace damage to the defective article itself is,
    of course, an anomaly which distinguishes it from liability for the
    manufacture of a defective chattel but it can, I think, be
    accounted for on the basis which my noble and learned friend,
    Lord Bridge of Harwich, suggested, namely that, in the case of a
    complex structure such as a building, individual parts of the
    building fall to be treated as separate and distinct items of
    property. On that footing, damage caused to other parts of the
    building from, for instance, defective foundations or defective
    steel-work would ground an action but not damage to the defective
    part itself except in so far as that part caused other damage,
    when the damages would include the cost of repair to that part so
    far as necessary to remedy damage caused to other parts. Thus,
    to remedy cracking in walls and ceilings caused by defective
    foundations necessarily involves repairing or replacing the
    foundations themselves. But, as in the instant case, damage to
    plaster caused simply by defective fixing of the plaster itself
    would ground no cause of action apart from contract or under the
    Defective Premises Act 1972. On what basis and apart from
    statute is a builder, in contradistinction to the manufacturer of a
    chattel, to be made liable beyond this? There is, so far as I am
    aware, and apart from Dutton v. Bognor Regis Urban District
    [1972] 1 Q.B. 373 no English authority prior to Anns v.
    Merton London Borough Council
    [1978] AC 728 supporting or even
    suggesting such a liability. Duttons case was followed by the
    Court of Appeal in New Zealand in Bowen v. Paramount Builders
    (Hamilton) Ltd.
    [1977] 1 N.Z.L.R. 394 where Richmond P., at p.
    410, defined the builder's duty as

    "a duty of care not to create latent sources of physical
    danger to the person or property of third persons whom he
    ought reasonably to foresee as likely to be affected

    He could see no reason why "if the latent defect causes actual
    physical damage to the structure of the house" such damage should
    not give rise to a cause of action. In so holding, the court was
    clearly influenced by certain United States decisions whose
    authority has now been much reduced if not destroyed by the
    Supreme Court decision in East River Steamship Corporation v.
    Transamerica Delaval Inc.,
    106 S.Ct. 2295 referred to by my noble
    and learned friend. The measure of damage in Bowen's case went
    a great deal beyond that suggested in Anns, for it not only
    covered the cost of putting the building into a state in which it
    was no longer dangerous to health or safety but extended to the
    restoration of its aesthetic appearance and depreciation in value.
    This really suggests what is, in effect, a transmissible warranty of
    fitness and, for the reasons already mentioned, I do not for my
    part think that Bowen's case can be supported as an accurate
    reflection of the law of England. Rivtow Marine Ltd, v.
    Washington Ironworks
    (1973) 6 W.W.R. 692, the dissenting judgment
    in which was, to some extent, relied upon by Lord Wilberforce in
    Anns, does not, I think, really assist very much. It is true that it

    - 25 -

    was there held by the majority of the Supreme Court of Canada
    that the manufacturers and the supplier of defective equipment
    were liable for the economic loss suffered by the plaintiff as a
    result of the defective equipment having to be taken out of
    service, but the basis for the decision was the doctrine of reliance
    established by Hedley Byrne which placed upon the defendants a
    duty to warn of defects of which they were aware. Even on this
    basis, however, the damages did not extend to the cost of
    repairing the defective article itself.

    Since Anns' case there have, of course, been the decision of
    the Court of Appeal in Batty v. Metropolitan Realisations Ltd.
    [1978] 1 Q.B. 554 and the decision of this House in Junior Books
    Ltd, v. Veitchi Co. Ltd.
    [1983] AC 520. I do not, for my part,
    think that the latter is of any help in the present context. As my
    noble and learned friend, Lord Bridge of Harwich, has mentioned it
    depends upon so close and unique a relationship with the plaintiff
    that it is really of no use as an authority on the general duty of
    care and it rests, in any event, upon the Hedley Byrne doctrine of
    reliance. So far as the general limits of the general duty of care
    in negligence are concerned, I, too, respectfully adopt what is said
    in the dissenting speech in that case of Lord Brandon of Oakbrook.

    Batty v. Metropolitan Realisations Ltd., however, is directly
    in point and it needs to be carefully considered because it is, in
    my opinion, equally difficult to reconcile with any previously
    accepted concept of the tort of negligence. The defendant builder
    in that case had previously owned the land on which the plaintiff's
    house was built and was working in close conjunction with the
    plaintiff's vendor, who had bought the land from him. Thus the
    plaintiffs had a contractual relationship with the vendor, but none
    with the builder. There was no negligence in the construction of
    the house as such, nor was there any breach of statutory duty, nor
    had any damage yet occurred to the house. The negligence
    consisted solely in not appreciating what the builder ought
    reasonably to have appreciated, that is to say, that the
    immediately adjacent land was in such a condition that it would
    ultimately bring about the subsidence of the plaintiff's land and
    the consequent destruction of anything built upon it. At the date
    of the action and of the hearing no actual damage had been
    occasioned to the house. Ail that had happened was that a part
    of the garden had subsided, that being the event which alerted the
    plaintiffs to the danger which threatened the house. That,
    however, was not an event in any way attributable to fault on
    anyone's part but merely to the natural condition of the adjoining
    land. So that although there had been physical damage to the
    garden, it was not physical damage caused by any neglect on the
    part of the builders. The case is thus, on analysis, one in which
    the claim was for damages for pure economic loss caused by the
    putting onto the market of a product which, because defective,
    would become a danger to health and safety and thus of less value
    than it was supposed to be. It is not specified in the report of
    the case how the damages of £13,000 were calculated, but it
    seems that that sum must have been based on the difference
    between the market value of the house (which was doomed to
    destruction and therefore valueless) and the value of an equivalent
    house built on land not subject to landslips. Thus what the
    plaintiffs obtained from the builders by way of damages in tort
    was the sum for which the builders would have been liable if they

    - 26 -

    had given an express contractual warranty of fitness - a sum
    related directly not to averting the danger created by the builders'
    negligence but to the replacement of an asset which, by reason of
    the danger, had lost its value. The decision in Batty's case was
    based upon Anns' case, but in fact went one step further because
    there was not in fact any physical damage resulting from the
    builders' negligence, although Megaw L.J., at p. 571, appears to
    have considered that what mattered was the occurrence of physical
    damage to some property of the plaintiff, however caused. As in
    Anns, the cause of action was related not to damage actually
    caused by the negligent act but to the creation of the danger of
    damage, and the case is therefore direct authority for the
    recovery of damages in negligence for pure economic loss - a
    proposition now firmly established in New Zealand (see Mount
    Albert Borough Council v. Johnson
    [1979] 2 N.Z.L.R. 234).

    My Lords, I confess to the greatest difficulty in reconciling
    this with any previously accepted concept of the tort of negligence
    at common law and I share the doubt expressed by my noble and
    learned friend, Lord Bridge of Harwich, whether it was correctly
    decided, at any rate so far as the liability of the builder was
    concerned. The case was, however, one in which the builder and
    the developer, with whom the plaintiffs had directly contractual
    relationship, were, throughout, acting closely in concert and it may
    be that the actual decision, although not argued on this ground,
    can be justified by reference to the principle of reliance
    established by the decision of this House in Hedley Byrne & Co.
    Ltd, v. Heller & Partners Ltd.
    [1964] AC 465

    My Lords, I have to confess that the underlying logical basis
    for and the boundaries of the doctrine emerging from Anns v.
    Merton London Borough Council
    [1978] AC 728 are not entirely
    clear to me and it is in any event unnecessary for the purposes of
    the instant appeal to attempt a definitive exposition. This much
    at least seems clear: that in so far as the case is authority for
    the proposition that a builder responsible for the construction of
    the building is liable in tort at common law for damage occurring
    through his negligence to the very thing which he has constructed,
    such liability is limited directly to cases where the defect is one
    which threatens the health or safety of occupants or of third
    parties and (possibly) other property. In such a case, however, the
    damages recoverable are limited to expenses necessarily incurred in
    averting that danger. The case cannot, in my opinion, properly be
    adapted to support the recovery of damages for pure economic loss
    going beyond that, and for the reasons given by my noble and
    learned friend, with whose analysis I respectfully agree, such loss
    is not in principle recoverable in tort unless the case can be
    brought within the principle of reliance established by Hedley
    In the instant case the defective plaster caused no damage
    to the remainder of the building and in so far as it presented a
    risk of damage to other property or to the person of any occupant
    that was remediable simply by the process of removal. I agree,
    accordingly, for the reasons which my noble and learned friend has
    given, that the cost of replacing the defective plaster is not an
    item for which the builder can be held liable in negligence. I too
    would dismiss the appeal.

    - 27 -


    My Lords,

    I have had the advantage of reading in draft the speeches
    prepared by my noble and learned friends Lord Bridge of Harwich
    and Lord Oliver of Aylmerton. I agree with them, and would
    dismiss this appeal.

    - 28 -

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