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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Murphy v Brentwood District Council [1991] UKHL 2 (26 July 1990)
URL: http://www.bailii.org/uk/cases/UKHL/1991/2.html
Cite as: [1991] 1 AC 398, [1991] AC 398, [1990] 2 All ER 908, [1991] UKHL 2

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JISCBAILII_CASE_TORT

    Parliamentary Archives,
    HL/PO/JU/18/250

    Murphy (Respondent)

    v.
    Brentwood District Council (Appellants)

    JUDGMENT

    Die Jovis 26° Julii 1990

    Upon Report from the Appellate Committee to whom was
    referred the Cause Murphy against Brentwood District Council,
    That the Committee had heard Counsel on Monday the 14th,
    Tuesday the 15th, Wednesday the 16th, Tuesday the 17th, Monday
    the 21st, Tuesday the 22nd and Wednesday the 23rd days of May
    last, upon the Petition and Appeal of Brentwood District
    Council of Council Offices, Brentwood, Essex, 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 21st day of
    December 1989, 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 Thomas Murphy lodged in answer to the said Appeal; and due
    consideration had this day of what was offered on either side
    in this Cause:

    It is Ordered and Adjudged, by the Lords Spiritual and
    Temporal in the Court of Parliament of Her Majesty the Queen
    assembled, That the said Order of Her Majesty's Court of
    Appeal of the 21st day of December 1989 complained of in the
    said Appeal be, and the same is hereby, Set Aside and that the
    Order o£ His Honour Judge Esyr Lewis of the 25th day of
    February 1988 be and the same is hereby Set Aside: And it is
    further Ordered, That the Respondent do pay or cause to be
    paid to the said Appellants the Costs incurred by them in the
    Courts below and also the Costs incurred by them in respect of
    the said Appeal to this House, the amount of such last-
    mentioned Costs to be certified by the Clerk of the
    Parliaments if not agreed between the parties: And it is also
    further Ordered, That the Cause be, and the same is hereby,
    remitted back to the Queen's Bench Division of the High Court
    of Justice to do therein as shall be just and consistent with
    this Judgment.

    Cler: Parliamentor:

    Judgment: 26.7.90

    HOUSE OF LORDS

    MURPHY
    (RESPONDENT)

    v.

    BRENTWOOD DISTRICT COUNCIL
    (APPELLANTS)

    Lord Chancellor
    Lord Keith of Kinkel
    Lord Bridge of Harwich
    Lord Brandon of Oakbrook
    Lord Ackner
    Lord Oliver of Aylmerton
    Lord Jauncey of Tullichettle


    LORD MACKAY OF CLASHFERN L.C.

    My Lords,

    I have had the advantage of reading in draft the speeches
    of my noble and learned friends Lord Keith of Kinkel and Lord
    Bridge of Harwich. They have comprehensively analysed the issues
    arising in this appeal and in consequence I am able to express my
    conclusion briefly.

    We are asked to depart from the judgment of this House in
    Anns v. Merton London Borough Council [1978] AC 728 under the
    practice statement of 1966 (Practice Statement (Judicial
    Precedent)
    [1966] 1 W.L.R. 1234). That decision was taken after
    very full consideration by a committee consisting of most eminent
    members of this House. In those circumstances I would be very
    slow to accede to the suggestion that we should now depart from
    it. However, the decision was taken as a preliminary issue of law
    and accordingly the facts had not at that stage been examined in
    detail and the House proceeded upon the basis of the facts stated
    in the pleadings supplemented by such further facts and documents
    as had been agreed between the parties. Under the head "Nature
    of the damages recoverable and arising of the cause of action"
    Lord Wilberforce said, at p. 759:

    "There are many questions here which do not directly arise
    at this stage and which may never arise as the actions are
    tried. But some conclusions are necessary if we are to deal
    with the issue as to limitation."

    When one attempts to apply the proposition established by the
    decision to detailed factual situations difficulties arise and this
    was clearly anticipated by Lord Wilberforce when he said, at p.
    760:

    "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

    - 1 -
    to decide. It is sufficient to say that a cause of action
    arises at the point I have indicated."

    That point was when damage to the house had occurred resulting
    in there being a present or imminent danger to the health or
    safety of persons occupying it.

    As I read the speech of Lord Wilberforce the cause of
    action which he holds could arise in the circumstances of that
    case can only do so when damage occurs to the house in question
    as a result of the weakness of the foundations and therefore no
    cause of action arises before that damage has occurred even if as
    a result of information obtained about the fundations it may
    become apparent to an owner that such damage is likely.

    The person to whom the duty is owed is an owner or
    occupier of the house who is such when the damage occurs. And
    therefore an owner or occupier who becomes aware of the
    possibility of damage arising from a defective foundation would not
    be within the class of persons upon whom the right of action is
    conferred.

    As had been demonstrated in the speeches of my noble and
    learned friends, the result of applying these qualifications to
    different factual circumstances is to require distinctions to be
    made which have no justification on any reasonable principle and
    can only be described as capricious. It cannot be right for this
    House to leave the law in that state.

    Two options call for consideration. The first is to remove
    altogether the qualifications on the cause of action which Anns
    held to exist. This would be in itself a departure from Anns since
    these qualifications are inherent in the decision. The other option
    is to go back to the law as it was before Anns was decided and
    this would involve also overruling Dutton v. Bognor Regis Urban
    District Council
    [1972] 1 Q.B. 373.

    Faced with the choice I am of the opinion that it is
    relevant to take into account that Parliament has made provisions
    in the Defective Premises Act 1972 imposing on builders and
    others undertaking work in the provision of dwellings obligations
    relating to the quality of their work and the fitness for habitation
    of the dwelling. For this House in its judicial capacity to create
    a large new area of responsibility on local authorities in respect of
    defective buildings would in my opinion not be a proper exercise
    of judicial power. I am confirmed in this view by the
    consideration that it is not suggested, and does not appear to have
    been suggested in Anns, that the Public Health Act 1936, in
    particular Part n, manifests any intention to create statutory
    rights in favour of owners or occupiers of premises against the
    local authority charged with responsibility under the Act. The
    basis of the decision in Anns is that the common law will impose
    a duty in the interests of the safety and health of owners and
    occupiers of buildings since that was the purpose for which the
    Act of 1936 was enacted. While of course I accept that duties at
    common law may arise in respect of the exercise of statutory
    powers or the discharge of statutory duties I find difficulty in
    reconciling a common law duty to take reasonable care that plans
    should conform with byelaws or regulations with the statute which

    - 2 -

    has imposed on the local authority the duty not to pass plans
    unless they comply with the byelaws or regulations and to pass
    them if they do.

    In these circumstances I have reached the clear conclusion
    that the proper exercise of the judicial function requires this
    House now to depart from Anns in so far as it affirmed a private
    law duty of care to avoid damage to property which causes
    present or imminent danger to the health and safety of owners, or
    occupiers, resting upon local authorities in relation to their
    function of supervising compliance with building byelaws or
    regulations, that Dutton v. Bognor Regis Urban District Council
    should be overruled and that all decisions subsequent to Anns
    which purported to follow it should be overruled. I accordingly
    reach the same conclusion as do my noble and learned friends.

    I should make it clear that I express no opinion upon the
    question whether, if personal injury were suffered by an occupier
    of defective premises as a result of a latent defect in those
    premises, liability in respect of that personal injury would attach
    to a local authority which had been charged with the public law
    duty of supervising compliance with the relevant building byelaws
    or regulations in respect of a failure properly to carry out such
    duty.

    LORD KEITH OF KINKEL

    My Lords,

    This appeal raises directly the question whether Anns v.
    Merton London Borough Council
    [1978] AC 728 was in all respects
    correctly decided.

    The facts are that over a period ending in 1969 a concern
    called ABC Homes constructed an estate of 160 dwelling houses on
    a site in Brentwood. Two of these houses, nos. 36 and 38
    Vineway, were built over filled ground upon a concrete raft
    foundation. The raft was designed by a firm of civil engineers
    called Grahame Rudkins Associates. The design, which included
    certain steel reinforcement, was submitted to the appellant
    council, together with supporting calculations, for approval under
    section 64 of the Public Health Act 1936. The council, whose
    building control staff did not include any persons qualified to judge
    the suitability of the design, sought the advice of independent
    consulting engineers, Messrs. S. D. Mayer & Partners. Their
    advice was to the effect that the design was appropriate to the
    conditions and could properly be approved. The council accordingly
    approved it on 1 January 1969. The plaintiff purchased 38,
    Vineway from ABC Homes in 1970 and took up residence there.
    From 1981 onwards serious cracks started appearing in the internal
    walls of the house. In addition, wet patches appeared in the lawn.
    The plaintiff dug a hole in front of the house and exposed part of
    the foundation raft. He observed a crack in it about three-
    quarters of an inch wide at the bottom tapering to nothing at the
    top. The plaintiff contacted his insurance company, Norwich
    Union, which caused investigations to be made by consulting

    - 3 -

    engineers. These revealed that the concrete raft had subsided
    differentially, so causing distortion and cracking. In July 1985 the
    gas pipe leading to a fire in the living room cracked and was
    replaced at a cost of £48. It was found that the soil pipe leading
    to the main drain had cracked and was leaking into the
    foundations. The plaintiff's neighbour at 36, Vineway also suffered
    damage to his house through the settlement, and made a claim on
    his insurers. Liability was not accepted, and accordingly the
    neighbour was unable to afford any contribution to the cost of
    remedial work to the joint structure of the two houses. The
    plaintiff's insurers, Norwich Union, were not prepared to pay the
    whole cost. The plaintiff therefore decided to sell his house and
    move elsewhere. He sold it in July 1986 for £30,000 to a builder
    who was aware of the structural defects, and who has since
    occupied it with his family without carrying out any remedial
    work. The value of the house had it been free from defect was
    agreed to have been at the time £65,000. Norwich Union paid the
    plaintiff £35,000 in settlement of his claim for subsidence damage.
    There was evidence that the cost of remedial work on the
    foundations of the house would have been in the region of £45,000.
    The damages claimed by the plaintiff against the council, in
    proceedings commenced in September 1983, included the sum of
    £35,000 and also the sum of £3,631.25 in respect of costs incurred
    in selling 38, Vineway and buying a new house and moving there,
    £98 for refitting carpets in the new house, and £48 for replacing
    the fractured gas pipe.

    The case was tried before Judge Esyr Lewis Q.C. as official
    referee. He gave judgment on 18 March 1988 awarding the
    plaintiff damages of £38,777.25, made up of the four items
    mentioned above, together with interest of £7,173.75. In the
    course of his judgment he made the following findings: (a) The
    design of the concrete raft was defective in that it did not
    provide for sufficient steel reinforcement and was therefore
    unsuitable for the site. (b) Messrs. Mayer were competent
    engineers and the council were entitled to rely on their skill and
    experience. (c) Messrs. Mayer were negligent in approving the
    design of the concrete raft as suitable for the site, (d) As a
    result of its defective design the raft cracked and became
    distorted so that differential settlement occurred and cracks were
    caused in some walls and a gas pipe and a soil pipe were
    fractured, (e) Sporadic and unpredictable settlement of the raft
    would occur in the future though the total amount of future
    settlement might be small, (f) There was a risk that the main
    gas pipe might fracture and that water pipes might also fracture
    causing water to leak into electrical fittings. This, together with
    leakage of sewage into the foundations from the fractured soil
    pipe, constituted an imminent danger to the health and safety of
    occupants of the house.

    In the light of these findings Judge Esyr Lewis held that the
    council were liable to the plaintiff in negligence under the
    principle of Anns v. Merton London Borough Council. He further
    held that the council's duty to take reasonable care in considering
    the suitability of the design of the concrete raft had not been
    discharged by obtaining and acting upon the advice of competent
    independent consulting engineers. He also decided against the
    council a limitation point which is no longer a live issue.

    - 4 -

    An appeal by the council to the Court of Appeal was
    dismissed by that court (Fox, Ralph Gibson and Nicholls L.JJ.)
    [1990] 2 W.L.R. 944 on 21 December 1989. The council now
    appeals, with leave given in the Court of Appeal, to your
    Lordships' House.

    Both Judge Esyr Lewis and the Court of Appeal proceeded
    on the basis that the plaintiff had a good cause of action by
    virtue of the decision in Anns. It was held that the diminution in
    the value of the plaintiff's house by reason of the state of its
    foundations formed an item of damages recoverable in law. Ralph
    Gibson L.J. said, at pp. 966-967:

    "In this case, upon the facts as the plaintiff contended that
    they were on the evidence, the plaintiff's loss on sale as
    awarded was substantially less than the cost of eliminating
    the danger found by the judge to exist. Full effect is given
    to the nature of the cause of action as established in Anns,
    and to any limitations necessarily imposed upon that cause
    of action by the nature of the statutory purposes of the
    [Public Health Act 1936], if the damages awarded are
    justified by proof of imminent danger to health and safety,
    by proof of the fact that the loss on sale was caused by
    the existence of that danger, and proof that the amount
    awarded does not exceed the cost of eliminating that
    danger."

    Before your Lordship's House it was argued on behalf of the
    council that Anns was wrongly decided and should be departed
    from under the practice statement of 26 July 1966 (Practice
    Statement (Judicial Precedent)
    [1966] 1 W.L.R. 1234). The
    speeches of my noble and learned friends Lord Bridge of Harwich
    and Lord Oliver of Aylmerton in D. & F. Estates Ltd v. Church
    Commissioners for England
    [1989] AC 177 contain some passages
    expressing doubts as to the extent to which the decision in Anns is
    capable of being reconciled with pre-existing principle. It is
    therefore appropriate to subject the decision to careful
    reconsideration.

    As is well known, it was held in Anns that a local authority
    might be liable in negligence to long lessees occupying maisonettes
    built on inadequate foundations not complying with relevant
    building regulations, on the ground of failure by the authority to
    discover by inspection the inadequacy of the foundations before
    they were covered over. The proceedings arose out of the trial of
    a preliminary issue as to whether or not the plaintiffs had any
    cause of action against the local authority, and the damages
    claimed by them were not specified in the pleadings. It appeared,
    however, that such damages would include the cost of repairing
    cracks in the structure and of underpinning the foundations of the
    block of maisonettes.

    The leading speech was that of Lord Wilberforce. His
    examination of law started with the formulation of the two stage
    test of liability in negligence which, though it has since become
    very familiar, I venture to quote again [1978] AC 728, 751-752:

    'Through the trilogy of cases in this House - Donoghue v.
    Stevenson
    [1932] AC 562, Hedley Byrne & Co. Ltd. v.

    - 5 -

    Heller & Partners Ltd. [1964] AC 465, and Dorset Yacht
    Co. Ltd. v. Home Office
    [1970] AC 1004, the position has
    now been reached that in order to establish that a duty of
    care arises in a particular situation, it is not necessary to
    bring the facts of that situation within those of previous
    situations in which a duty of care has been held to exist.
    Rather the question has to be approached in two stages.
    First one has to ask whether, as between the alleged
    wrongdoer and the person who has suffered damage there is
    a sufficient relationship of proximity or neighbourhood such
    that, in the reasonable contemplation of the former,
    carelessness on his part may be likely to cause damage to
    the latter - in which case a prima facie duty of care arises.
    Secondly, if the first question is answered affirmatively, it
    is necessary to consider whether there are any
    considerations which ought to negative, or to reduce or limit
    the scope of the duty or the class of person to whom it is
    owed or the damages to which a breach of it may give rise:
    see Dorset Yacht case [1970] AC 1004, per Lord Reid at
    p. 1027. Examples of this are Hedley Byrne's case [1964]
    A.C. 465 where the class of potential plaintiffs was reduced
    to those shown to have relied upon the correctness of
    statements made, and Weller & Co. v. Foot and Mouth
    Disease Research Institute
    [1966] 1 Q.B. 569; and (I cite
    these merely as illustrations, without discussion) cases about
    "economic loss" where, a duty having been held to exist, the
    nature of the recoverable damages was limited: see S.C.M.
    (United Kingdom) Ltd. v. W. J. Whittall & Son Ltd.
    [1971] 1
    Q.B. 337 and Spartan Steel & Alloys Ltd. v. Martin & Co.
    (Contractors) Ltd.
    [1973] QB 27."

    I observe at this point that the two-stage test has not been
    accepted as stating a universally applicable principle. Reservations
    about it were expressed by myself in Governors of the Peabody
    Donation Fund v. Sir Lindsay Parkinson & Co. Ltd.
    [1985] A.C.
    210, 240, by Lord Brandon of Oakbrook in Leigh and Sillavan Ltd.
    v. Aliakmon Shipping Co. Ltd.
    [1986] AC 785, 815 and by Lord
    Bridge of Harwich in Curran v. Northern Ireland Co-ownership
    Housing Association Ltd.
    [1987] A.C. 718. In Council of the Shire
    of Sutherland v. Heyman
    (1985) 157 C.L.R. 424, where the High
    Court of Australia declined to follow Anns, Brennan J. expressed
    his disagreement with Lord Wilberforce's approach, saying, at p.
    481:

    "It is preferable, in my view, that the law should develop
    novel categories of negligence incrementally and by analogy
    with established categories, rather than by a massive
    extension of a prima facie duty of care restrained only by
    indefinable 'considerations which ought to negative, or to
    reduce or limit the scope of the duty or the class of person
    to whom it is owed.'"

    In the Privy Council case of Yuen Kun Yeu v. Attorney-
    General of Hong Kong
    [1988] A.C. 175, 191 that passage was
    quoted with approval and it was said, at p. 194:

    "In view of the direction in which the law has since been
    developing, their Lordships consider that for the future it
    should be recognised that the two-stage test ... is not to

    - 6 -

    be regarded as in all circumstances a suitable guide to the
    existence of a duty of care."

    Finally, in Yuen Kun Yeu 193, and in Hill v. Chief
    Constable of West Yorkshire
    [1989] AC 53, 63, I expressed the
    opinion, concurred in by the other members of the House who
    participated in the decisions, that the second stage of the test
    only came into play where some particular consideration of public
    policy excluded any duty of care. As regards the ingredients
    necessary to establish such a duty in novel situations, I consider
    that an incremental approach on the lines indicated by Brennan J.
    in the Shire of Sutherland case is to be preferred to the two-stage
    test.

    Lord Wilberforce thereafter went on to consider the
    purposes of the Act of 1936, to hold that the local authority were
    under a duty to give proper consideration to the question whether
    they should inspect or not and to hold further that in relation to
    an inspection which it was decided to make there was a duty to
    exercise reasonable care in making it. Having considered East
    Suffolk Rivers Catchment Board v. Kent
    [1941] AC 74 and Dorset
    Yacht Co. Ltd. v. Home Office
    [1970] AC 1004, he continued, at
    p. 758:

    "To whom the duty is owed. There is, in my opinion,
    no difficulty about this. A reasonable man in the position
    of the inspector must realise that if the foundations are
    covered in without adequate depth or strength as required
    by the byelaws, injury to safety or health may be suffered
    by owners or occupiers of the house. The duty is owed to
    them - not of course to a negligent building owner, the
    source of his own loss. I would leave open the case of
    users, who might themselves have a remedy against the
    occupier under the Occupiers' Liability Act 1957. A right
    of action can only be conferred upon an owner or occupier,
    who is such when the damage occurs (see below). This
    disposes of the possible objection that an endless,
    indeterminate class of potential plaintiffs may be called into
    existence.

    "The nature of the duty. This must be related
    closely to the purpose for which powers of inspection are
    granted, namely, to secure compliance with the byelaws.
    The duty is to take reasonable care, no more, no less, to
    secure that the builder does not cover in foundations which
    do not comply with byelaw requirements. The allegations in
    the statements of claim, in so far as they are based upon
    non-compliance with the plans, are misconceived."

    Lord Wilberforce went on, at pp. 758-759, to consider the
    position of the builder, upon the view 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 liability. This consideration was, I think, a
    necessary part of the reasoning which led to his conclusion about
    the liability of the local authority. The Dorset Yacht case, upon
    which Lord Wilberforce was proceeding, was concerned with the
    liability of prison officers for failing to take reasonable care to
    prevent the Borstal boys in their charge from acting tortiously

    - 7 -

    towards the owners of yachts moored in the vicinity of their
    encampment. If the conduct of the boys had not been tortious
    there would have been no liability on the prison officers. So,
    likewise, if the builder of defective foundations had been under no
    liability in tort, the local authority could have been under no
    liability for not taking reasonable care to see that he did not
    construct defective foundations. Lord Wilberforce took the view
    that the principle of Donoghue v. Stevenson [1932] AC 562
    applied to the builder of defective premises, there being no sound
    reason why that principle should be limited to defective chattels.

    I see no reason to doubt that the principle of Donoghue v.
    Stevenson
    does indeed apply so as to place the builder of premises
    under a duty to take reasonable care to avoid injury through
    defects in the premises to the person or property of those whom
    he should have in contemplation as likely to suffer such injury if
    care is not taken. But it is against injury through latent defects
    that the duty exists to guard. I shall consider this aspect more
    fully later.

    Lord Wilberforce went on, at pp. 759-760:

    "Nature of the damages recoverable and arising of the
    cause of action.
    There are many questions here which 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. 546.

    "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

    - 8 -

    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 sufficient
    to say that a cause of action arises at the point I have
    indicated."

    Counsel for the council did not seek to argue that a local
    authority owes no duty at all to persons who might suffer injury
    through a failure to take reasonable care to secure compliance
    with building byelaws. He was content to accept that such a duty
    existed but maintained that its scope did not extend beyond injury
    to person or health and (possibly) damage to property other than
    the defective building itself. Not having heard argument upon the
    matter, I prefer to reserve my opinion on the question whether
    any duty at all exists. So far as I am aware, there has not yet
    been any case of claims against a local authority based on injury
    to person or health through a failure to secure compliance with
    building byelaws. If and when such a case arises, that question
    may require further consideration. The present problem is
    concerned with the scope of the duty. The question is whether
    the appellant council owed the respondent a duty to take
    reasonable care to safeguard him against the particular kind of
    damage which he has in fact suffered, which was not injury to
    person or health nor damage to anything other than the defective
    house itself (see Overseas Tankship (U.K.) Ltd. v. Morts Dock and
    Engineering Co. Ltd., (The Wagon Mound)
    [1961]) A.C. 388, 425,
    per Viscount Simonds: Caparo Industries Plc, v. Dickman [1990] 2
    W.L.R. 358, 373, 396 per Lord Bridge of Harwich and Lord Oliver
    of Aylmerton, quoting the judgment of Brennan J. in the Shire of
    Sutherland
    case; 157 C.L.R. 424, 487). 60 A.L.R. 1, 48.

    Lord Wilberforce, in the passage last quoted from his speech
    in Anns, does not devote precise consideration to the scope of the
    duty owed by a local authority as regards securing compliance with
    building byelaws. The question whether recovery could be allowed
    for damage to the house and for the cost putting it in such a
    state as to be no longer a danger to health or safety was treated
    in the context of the measure of damages and the answer was said
    to follow from normal principle. It appears that the normal
    principle concerned was that which emerged from Donoghue v.
    Stevenson,
    as extended to the sphere of statutory functions of
    public bodies in Dorset Yacht Co. Ltd. v. Home Office. However,
    an essential feature of the species of liability in negligence
    established by Donoghue v. Stevenson was that the carelessly
    manufactured -product should be intended to reach the injured
    consumer in the same state as that in which it was put up with
    no reasonable prospect of intermediate examination (see per Lord
    Atkin, at p. 599; also Grant v. Australian Knitting Mills Ltd.
    [1936] AC 85, per Lord Wright, at pp. 103-105). It is the latency
    of the defect which constitutes the mischief. There may be room

    - 9 -

    for disputation as to whether the likelihood of intermediate
    examination and consequent actual discovery of the defect has the
    effect of negativing a duty of care or of breaking the chain of
    causation (compare Farr v. Butters Brothers & Co. [1932] 2 K.B.
    606 with Denny v. Supplies & Transport Co. Ltd. [1950] 2 K.B.
    374). But there can be no doubt that, whatever the rationale, a
    person who is injured through consuming or using a product of the
    defective nature of which he is well aware has no remedy against
    the manufacturer. In the case of a building, it is right to accept
    that a careless builder is liable, on the principle of Donoghue v.
    Stevenson,
    where a latent defect results in physical injury to
    anyone, whether owner, occupier, visitor or passer-by, or to the
    property of any such person. But that principle is not apt to
    bring home liability towards an occupier who knows the full extent
    of the defect yet continues to occupy the building. The Dorset
    Yacht
    case was concerned with the circumstances under which one
    person might come under a duty to another to take reasonable
    care to prevent a third party from committing a tort against that
    other. So the case had affinities with Anns where a local
    authority was held to be under a duty to take reasonable care to
    prevent a builder from causing damage through carelessness to
    subsequent occupiers of houses built by him. In Dorset Yacht,
    however, the damage caused was physical damage to property, and,
    as I explained in Hill v. Chief Constable of West Yorkshire [1989]
    A.C. 53, 61, the prison officers in charge of the Borstal boys had
    created a potential situation of danger for the owners of yachts
    moored in the vicinity of the encampment by bringing the boys
    into that locality. No such feature was present in Anns.

    In Anns the House of Lords approved, subject to explanation,
    the decision of the Court of Appeal in Dutton v. Bognor Regis
    Urban District Council
    [1972] 1 Q.B. 373. In that case Lord
    Denning M.R. said, at p. 396:

    "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. ... 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
    repair."

    The jump which is here made from liability under the Donoghue v.
    Stevenson
    principle for damage to person or property caused by a
    latent defect in a carelessly manufactured article to liability for

    - 10 -

    the cost of rectifying a defect in such an article which is ex
    hypothesi no longer latent is difficult to accept. As Stamp L.J.
    recognised in the same case, at pp. 414-415, there is no liability
    in tort upon a manufacturer towards the purchaser from a retailer
    of an article which turns out to be useless or valueless through
    defects due to careless manufacture. The loss is economic. It is
    difficult to draw a distinction in principle between an article
    which is useless or valueless and one which suffers from a defect
    which would render it dangerous in use but which is discovered by
    the purchaser in time to avert any possibility of injury. The
    purchaser may incur expense in putting right the defect, or, more
    probably, discard the article. In either case the loss is purely
    economic. Stamp L.J. appears to have taken the view that in the
    case of a house the builder would not be liable to a purchaser
    where the defect was discovered in time to prevent injury but that
    a local authority which had failed to discover the defect by
    careful inspection during the course of construction was so liable.

    Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B.
    554 was a case where a house which suffered no defects of
    construction had been built on land subject to the danger of
    slippage. A landslip carried away part of the garden but there
    was no damage to the house itself. Due to the prospect, however,
    that at some future time the house might be completely carried
    away, it was rendered valueless. There was no possibility of
    remedial works such as might save the house from being carried
    away. The Court of Appeal allowed recovery in tort against the
    builder of damages based on loss of the value of the house. That
    again was purely economic loss.

    Consideration of the nature of the loss suffered in this
    category of cases is closely tied up with the question of when the
    cause of action arises. Lord Wilberforce in Anns [1978] AC 728,
    760 as regarded it as arising when the state of the building is
    such that there is present an imminent danger to the health or
    safety of persons occupying it. That state of affairs may exist
    when there is no actual physical damage to the building itself,
    though Lord Wilberforce had earlier referred to the relevant
    damage being material physical damage. So his meaning may have
    been that there must be a concurrence of material physical
    damage and also present or imminent danger to the health or
    safety of occupants. On that view there would be no cause of
    action where the building had suffered no damage (or possibly,
    having regard to the word "material," only very slight damage) but
    a structural survey had revealed an underlying defect, presenting
    imminent danger. Such a discovery would inevitably cause a fall
    in the value of the building, resulting in economic loss to the
    owner. That such is the nature of the loss is made clear in cases
    where the owner abandons the building as incapable of being put in
    a safe condition (as in Batty), or where he choses to sell it at the
    lower value rather than undertake remedial works. In Pirelli
    General Cable Works Ltd. v. Oscar Faber & Partners
    [1983] 2 A.C.
    1 it was held that the cause of action in tort against consulting
    engineers who had negligently approved a defective design for a
    chimney arose when damage to the chimney caused by the
    defective design first occurred, not when the damage was
    discovered or with reasonable diligence might have been
    discovered. The defendants there had in relation to the design
    been in contractual relations with the plaintiffs, but it was

    - 11 -

    :

    common ground that a claim in contract was time-barred. If the
    plaintiffs had happened to discover the defect before any damage
    had occurred there would seem to be no good reason for holding
    that they would not have had a cause of action in tort at that
    stage, without having to wait until some damage had occurred.
    They would have suffered economic loss through having a defective
    chimney upon which they required to expend money for the
    purpose of removing the defect. It would seem that in a case
    such as Pirelli where the tortious liability arose out of a
    contractual relationship with professional people, the duty extended
    to take reasonable care not to cause economic loss to the client
    by the advice given. The plaintiffs built the chimney as they did
    in reliance on that advice. The case would accordingly fall within
    the principle of Medley Byrne & Co. Ltd. v. Heller & Partners
    Ltd.
    [1964] AC 465. I regard Junior Books Ltd. v. Veitchi Co.
    Ltd.
    [1983] 1 AC 520 as being an application of that principle.

    In my opinion it must now be recognised that, although the
    damage in Anns was characterised as physical damage by Lord
    Wilberforce, it was purely economic loss. In Council of the Shire
    of Sutherland v. Heyman,
    157 C.L.R. 424 where, as observed
    above, the High Court of Australia declined to follow Anns when
    dealing with a claim against a local authority in respect of a
    defectively constructed house, Deane J. said, at pp. 503-505:

    "Nor is the respondents' claim in the present case for
    ordinary physical damage to themselves or their property.
    Their claim, as now crystallized, is not in respect of
    damage to the fabric of the house or to other property
    caused by collapse or subsidence of the house as a result of
    the inadequate foundations. It is for the loss or damage
    represented by the actual inadequacy of the foundations,
    that is to say, it is for the cost of remedying a structural
    defect in their property which already existed at the time
    when they acquired it. In Anns v. Merton London Borough
    Council
    [1978] AC 728, it was held by the House of Lords
    that a local government authority owed a relevant duty of
    care, in respect of inspection of the foundations of a
    building, to persons who subsequently became long term
    lessees (either as original lessees or as assignees) of parts of
    the building. Lord Wilberforce, at p. 759, in a speech with
    which three of the other four members of the House of
    Lords agreed, expressed the conclusion that the appropriate
    classification of damage sustained by the lessees by reason
    of the inadequacy of the foundations of the completed
    building was '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.' While, in a case where a
    subsequent purchaser or long term tenant reasonably elects
    to retain the premises and to reinforce the foundations, one
    possible measure of the damages involved in the actual
    inadequacy would (if such damages were recoverable) be that
    suggested by his Lordship, I respectfully disagree with the
    classification of the loss sustained in such circumstances as
    'material, physical damage.' Whatever may be the position
    with respect to consequential damage to the fabric of the

    - 12 -

    building or to other property caused by susequent collapse or
    subsidence, the loss or Injury involved in the actual
    inadequacy of . the foundations cannot, in the case of a
    person who purchased or leased the property after the
    inadequacy existed but before it was known or manifest,
    properly be seen as ordinary physical or material damage.
    The only property which could be said to have been
    damaged in such a case is the building. The building itself
    could not be said to have been subjected to "material,
    physical damage" by reason merely of the inadequacy of its
    foundations since the building never existed otherwise than
    with its foundations in that state. Moreover, even if the
    inadequacy of the foundations could be seen as material,
    physical damage to the building, it would be damage to
    property in which a future purchaser or tenant had no
    interest at all at the time when it occurred. Loss or injury
    could only be sustained by such a purchaser or tenant on or
    after the acquisition of the freehold or leasehold estate
    without knowledge of the faulty foundations. It is arguable
    that any such loss or injury should be seen as being
    sustained at the time of acquisition when, because of
    ignorance of the inadequacy of the foundations, a higher
    price is paid (or a higher rent is agreed to be paid) than is
    warranted by the intrinsic worth of the freehold or leasehold
    estate that is being acquired. Militating against that
    approach is the consideration that, for so long as the
    inadequacy of the foundations is neither known nor manifest,
    no identifiable loss has come home: if the purchaser or
    tenant sells the freehold or leasehold estate within that
    time, he or she will sustain no loss by reason of the
    inadequacy of the foundations. The alternative, and in my
    view preferable, approach is that any loss or injury involved
    in the actual inadequacy of the foundations is sustained only
    at the time when that inadequacy is first known or
    manifest. It is only then that the actual diminution in the
    market value of the premises occurs. On either approach,
    however, any loss involved in the actual inadequacy of the
    foundations by a person who acquires an interest in the
    premises after the building has been completed is merely
    economic in its nature."

    I find myself in respectful agreement with the reasoning
    contained in this passage, which seems to me to be
    incontrovertible.

    It being recognised that the nature of the loss held to be
    recoverable in Anns was pure economic loss, the next point for
    examination is whether the avoidance of loss of that nature fell
    within the scope of any duty of care owed to the plaintiffs by the
    local authority. On the basis of the law as it stood at the time
    of the decision the answer to that question must be in the
    negative. The right to recover for pure economic loss, not flowing
    from physical injury, did not then extend beyond the situation
    where the Joss had been sustained through reliance on negligent
    mis-statements, as in Hedley Byrne. There is room for the view
    that an exception is to be found in The Greystoke Castle [1947]
    A.C. 265. That case, which was decided by a narrow majority,
    may, however, be regarded as turning on specialties of maritime
    Jaw concerned in the relationship of joint adventurers at sea.

    - 13 -

    Further, though the purposes of the Act of 1936 as regards
    securing compliance with building byelaws covered the avoidance of
    injury to the safety or health of inhabitants of houses and of
    members of the public generally, these purposes did not cover the
    avoidance of pure economic loss to owners of buildings (see
    Governors of the Peabody Donation Fund v. Sir Lindsay Parkinson
    & Co. Ltd.
    [1985] AC 210, 241). Upon analysis, the nature of
    the duty held by Anns to be incumbent upon the local authority
    went very much further than a duty to take reasonable care to
    prevent injury to safety or health. The duty held to exist may be
    formulated as one to take reasonable care to avoid putting a
    future inhabitant owner of a house in a position in which he is
    threatened, by reason of a defect in the house, with avoidable
    physical injury to person or health and is obliged, in order to
    continue to occupy the house without suffering such injury, to
    expend money for the purpose of rectifying the defect.

    The existence of a duty of that nature should not, in my
    opinion, be affirmed without a careful examination of the
    implications of such affirmation. To start with, if such a duty is
    incumbent upon the local authority, a similar duty must necessarily
    be incumbent also upon the builder of the house. If the builder of
    the house is to be so subject, there can be grounds in logic or in
    principle for not extending liability upon like grounds to the
    manufacturer of a chattel. That would open on an exceedingly
    wide field of claims, involving the introduction of something in the
    nature of a transmissible warranty of quality. The purchaser of an
    article who discovered that it suffered from a dangerous defect
    before that defect had caused any damage would be entitled to
    recover from the manufacturer the cost of rectifying the defect,
    and presumably, if the article was not capable of economic repair,
    the amount of loss sustained through discarding it. Then it would
    be open to question whether there should not also be a right to
    recovery where the defect renders the article not dangerous but
    merely useless. The economic loss in either case would be the
    same. There would also be a problem where the defect causes the
    destruction of the article itself, without causing any personal
    injury or damage to other property. A similar problem could
    arise, if the Anns principle is to be treated as confined to real
    property, where a building collapses when unoccupied.

    In America the courts have developed the view that in the
    case of chattels damage to the chattel itself resulting from
    careless manufacture does not give a cause of action in negligence
    or in product liability. Thus in East River Steamship Corporation
    v. Transamerica Delaval Inc.
    (1986) 106 S.Ct. 2295 charterers of a
    supertanker were denied recovery on either of these grounds,
    against the manufacturers of turbines which had suffered damage
    through design or manufacturing defect and which had had to be
    replaced. Blackmun J. delivering the judgment of the Supreme
    Court expressed the opinion, at pp. 2302-2304, that a claim of this
    character fell properly into the sphere of warranty under contract
    law. This judgment was followed by the United States Court of
    Appeals, Third Circuit, in Aloe Coal Co. v. Clark Equipment Co.
    (1987) 816 F.2d 110, where recovery in negligence was refused in
    respect of damage to a tractor shovel which caught fire and was
    destroyed, allegedly due to careless manufacture. The view of
    these courts is in line with the dissenting judgment of Lord
    Brandon of Oakbrook in Junior Books Ltd. v. Veitchi Co. Ltd.
    [1983] 1 AC 520.

    - 14 -

    These American cases would appear to destroy the authority
    of the earlier decision in Quackenbush v. Ford Motor Co. (1915)
    153 N.Y.S. 131 founded on by the New Zealand Court of Appeal in
    Bowen v. Paramount Builders (Hamilton) Ltd. [1977] 1 N.Z.L.R.
    394. from which Lord Wilberforce in Anns [1978] AC 728, 759-760
    said he had derived assistance. He referred similarly to the
    dissenting judgment of Laskin J. in the Canadian Supreme Court
    case of Rivtow Marine Ltd. v. Washington Iron Works [1973] 6
    W.W.R. 692, 715. That was a case where a crane installed on the
    plaintiffs' barge was revealed as being dangerously defective as a
    result of a similar crane having collapsed and killed a man while
    being operated elsewhere. The manufacturers and the suppliers
    were aware of this occurrence but delayed considerably in warning
    the plaintiffs so that they were placed under the necessity of
    taking the crane out of service for rectification at the height of
    the logging season instead of in the slack season. The majority of
    the Supreme Court held the manufacturers and suppliers liable for
    the loss of profit sustained by the plaintiffs through not having
    been given earlier warning of the defect. This was upon the
    Hedley Byrne principle. They did not allow recovery for the cost
    of putting right the defect. The minority, Laskin and Hall JJ.,
    were in favour of allowing recovery of that cost. For my part, I
    consider that the decision of the majority was correct. The
    defect in the crane was discovered before it had done any damage,
    so that there could be no question of application of the Donoghue
    v. Stevenson
    [1932] AC 562 principle. The cost of rectifying the
    defect was incurred for the purpose of enabling the crane to be
    profitably operated. The danger of injury from the defect, once it
    was known, could have been averted simply by laying up the crane.
    The loss was purely economic.


    In D. & F. Estates Ltd. v. Church Commissioners for
    England
    [1989] AC 177 both Lord Bridge of Harwich and Lord
    Oliver of Aylmerton expressed themselves as having difficulty in
    reconciling the decision in Anns with pre-existing principle and as
    being uncertain as to the nature and scope of such new principle
    as it introduced. Lord Bridge, at p. 206, suggested that in the
    case of a complex structure such as a building one element of the
    structure might be regarded for Donoghue v. Stevenson purposes as
    distinct from another element, so that damage to one part of the
    structure caused by a hidden defect in another part might qualify
    to be treated as damage to "other property." I think that it
    would be unrealistic to take this view as regards a building the
    whole of which had been erected and equipped by the same
    contractor. In that situation the whole package provided by the
    contractor would, in my opinion, fall to be regarded as one unit
    rendered unsound as such by a defect in the particular part. On
    the other hand where, for example, the electric wiring had been
    installed by a subcontractor and due to a defect caused by lack of
    care a fire occurred which destroyed the building, it might not be
    stretching ordinary principles too far to hold the electrical
    subcontractor liable for the damage. If in the East River case the
    defective turbine had caused the loss of the ship the manufacturer
    of it could consistently with normal principles, I would think,
    properly have been held liable for that loss. But even if Lord
    Bridge's theory were to be held acceptable, it would not seem to
    extend to the founding of liability upon a local authority,
    considering that the purposes of the Act of 1936 are concerned

    - 15 -

    with averting danger to health and safety, not danger or damage
    to property. Further, it would not cover the situation which might
    arise through discovery, before any damage had occurred, of a
    defect likely to give rise to damage in the future.

    Liability under the Anns decision is postulated upon the
    existence of a present or imminent danger to health or safety.
    But considering that the loss involved in incurring expenditure to
    avert the danger is pure economic loss, there would seem to be no
    logic in confining the remedy to cases where such danger exists.
    There is likewise no logic in confining it to cases where some
    damage (perhaps comparatively slight) has been caused to the
    building, but refusing it where the existence of the danger has
    come to light in some other way, for example through a structural
    survey which happens to have been carried out, or where the
    danger inherent in some particular component or material has been
    revealed through failure in some other building. Then there is the
    question whether the remedy is available where the defect is
    rectified, not in order to avert danger to an inhabitant occupier
    himself, but in order to enable an occupier, who may be a
    corporation, to continue to occupy the building through its
    employees without putting those employees at risk.

    In my opinion it is clear that Anns did not proceed upon
    any basis of established principle, but introduced a new species of
    liability governed by a principle indeterminate in character but
    having the potentiality of covering a wide range of situations,
    involving chattels as well as real property, in which it had never
    hitherto been thought that the law of negligence had any proper
    place.

    The practice statement of 26 July 1966 (Practice Statement
    (Judicial Precedent)
    [1966] 1 W.L.R. 1234) leaves it open to this
    House to depart from a previous decision of its own if it so
    chooses. In Reg. v. National Insurance Commmissioner, Ex parte
    Hudson
    [1972] A.C. 944, 966 Lord Reid said:

    "The old view was that any departure from rigid adherences
    to precedent would weaken [the certainty of the law]. I did
    not and do not accept that view. It is notorious that where
    an existing decision is disapproved but cannot be overruled
    courts tend to distinguish it on inadequate grounds. I do
    not think that they act wrongly in so doing: they are only
    adopting the less bad of the only alternatives open to them.
    But this is bound to add to uncertainty for no one can say
    in advance whether in a particular case the court will or
    will not feel bound to follow the old unsatisfactory decision.
    On balance it seems to me that overruling such a decision
    will promote and not impair the certainty of the law."

    In my opinion there can be no doubt that Anns has for long
    been widely regarded as an unsatisfactory decision. In relation to
    the scope of the duty owed by a local authority it proceeded upon
    what must, with due respect to its source, be regarded as a
    somewhat superficial examination of principle and there has been
    extreme difficulty, highlighted most recently by the speeches in D.
    & F. Estates, in ascertaining upon exactly what basis of principle
    it did proceed. I think it must now be recognized that it did not
    proceed on any basis of principle at all, but constituted a

    - 16 -

    remarkable example of judicial legislation. It has engendered a
    vast spate of litigation, and each of the cases in the field which
    have reached this House has been distinguished. Others have been
    distinguished in the Court of Appeal. The result has been to keep
    the effect of the decision within reasonable bounds, but that has
    been achieved only by applying strictly the words of Lord
    Wilberforce and by refusing to accept the logical implications of
    the decision itself. These logical implications show that the case
    properly considered has potentiality for collision with long-
    established principles regarding liability in the tort of negligence
    for economic loss. There can be no doubt that to depart from the
    decision would re-establish a degree of certainty in this field of
    law which it has done a remarkable amount to upset.

    So far as policy considerations are concerned, it is no doubt
    the case that extending the scope of the tort of negligence may
    tend to inhibit carelessness and improve standards of manufacture
    and construction. On the other hand, overkill may present its own
    disadvantages, as was remarked in Rowling v. Takaro Properties
    Ltd.
    [1988] AC 473, 502. There may be room for the view that
    Anns-type liability will tend to encourage owners of buildings found
    to be dangerous to repair rather than run the risk of injury. The
    owner may, however, and perhaps quite often does, prefer to sell
    the building at its diminished value, as happened in the present
    case.

    It must, of course, be kept in mind that the decision has
    stood for some 13 years. On the other hand, it is not a decision
    of the type that is to a significant extent taken into account by
    citizens or indeed local authorities in ordering their affairs. No
    doubt its existence results in local authorities having to pay
    increased insurance premiums, but to be relieved of that necessity
    would be to their advantage, not to their detriment. To overrule
    it is unlikely to result in significantly incurred insurance premiums
    for householders. It is perhaps of some significance that most
    litigation involving the decision consists in contests between
    insurance companies, as is largely the position in the present case.
    The decision is capable of being regarded as affording a measure
    of justice, but as against that the impossibility of finding any
    coherent and logically based doctrine behind it is calculated to put
    the law of negligence into a state of confusion defying rational
    analysis. It is also material that Anns has the effect of imposing
    upon builders generally a liability going far beyond that which
    Parliament thought fit to impose upon house builders alone by the
    Defective Premises Act 1972, a statute very material to the policy
    of the decision but not adverted to in it. There is much to be
    said for the view that in what is essentially a consumer protection
    field, as was observed by Lord Bridge of Harwich in D. & F.
    Estates,
    at p. 207, the precise extent and limits of the liabilities
    which in the public interest should be imposed upon builders and
    local authorities are best left to the legislature.

    My Lords, I would hold that Anns was wrongly decided as
    regards the scope of any private law duty of care resting upon
    local authorities in relation to their function of taking steps to
    secure compliance with building byelaws or regulations and should
    be departed from. It follows that Dutton v. Bognor Regis Urban
    District Council
    [1972] 1 Q.B. 373 should be overruled, as should
    all cases subsequent to Anns which were decided in reliance on it.

    - 17 -

    In the circumstances I do not consider it necessary to deal
    with the question whether, assuming that the council were under a
    duty of the scope contended for by the plaintiff, they discharged
    that duty by acting on the advice of competent consulting
    engineers.

    My Lords, for these reasons I would allow the appeal.

    LORD BRIDGE OF HARWICH

    My Lords,

    The speech of my noble and learned friend Lord Keith of
    Kinkel addresses comprehensively all the issues on which the
    outcome of this appeal depends. I find myself in full agreement
    with it and would not think it necessary to say more if we were
    not proposing to take the important step of departing, under the
    practice statement of 1966 (Practice Statement (Judicial
    Precedent)
    [1966] 1 W.L.R. 1234, from propositions of law laid
    down by this House in Anns v. Merton Borough London Council
    [1978] AC 728, which have had a profound influence throughout
    the common law world. In the circumstances I think it right to
    explain in my own words, as briefly as I may, my reasons for
    thinking it right to take that step.

    The origin of the Anns doctrine

    The Anns doctrine, expressed in its most general form, holds
    a local authority which exercises statutory control over building
    operations liable in tort to a building owner or occupier for the
    cost of remedying a dangerous defect in a building which results
    from the negligent failure by the authority to ensure that the
    building was erected in conformity with applicable standards
    prescribed by building byelaws or regulations. The liability arises
    not from the breach of any statutory duty, but from the breach of
    a common law duty of care said to arise from the performance of
    the statutory functions. The doctrine, as propounded in the speech
    of Lord Wilberforce in this House, was, with some modifications,
    an adoption of principles of law first enunciated by the Court of
    Appeal in Dutton v. Bognor Regis Urban District Council [1972] 1
    Q.B. 373. That decision was certainly without precedent and was,
    I think, widely regarded as judicial legislation. If one reads the
    passage in the judgment of Lord Denning M.R., at pp. 397-398,
    under the rubric "Policy," it is difficult to think that he would
    have demurred to that criticism.

    Development of the Anns doctrine in the Commonwealth

    The doctrine arises from statutory provisions of a kind to be
    found in any developed society. The relevant statutes which
    operate in various Commonwealth jurisdictions differ in detail but
    have sufficient in common in their general structure and operation
    to make it legitimate and instructive to compare the fate of the
    Anns doctrine in those jurisdictions. The High Court of Australia
    declined to follow Anns in Council of the Shire of Sutherland v.
    Heyman.
    157 C.L.R. 424. In Canada and New Zealand, however,
    the Anns doctrine has been both followed and further developed.

    - 18 -

    In City of Kamloops v. Nielsen (1984) 10 D.L.R. (4th) 641, the
    Supreme Court of Canada, by a majority of three to two, held the
    municipal authority liable in damages in the following
    circumstances. When a dwelling house was in course of
    construction, the authority discovered that the foundations were
    defective. They issued a "stop work" order to prevent further
    building until proper foundations had been provided. The builder
    and the building owner ignored the order and when the building
    was completed the owner went into occupation without the
    requisite occupancy permit. Three years later he sold the house
    to the plaintiff who, after acquisition, discovered the defects in
    the foundation and sued the original owner in fraud and the
    authority in negligence. The only fault of the authority was their
    failure to take the appropriate legal proceedings to enforce the
    "stop work" order or to prevent occupation of the house without
    an occupancy permit. They were held liable jointly with the
    original owner. The majority of the court held in terms that the
    plaintiff was entitled to recover his purely economic loss
    represented by the cost of making good the foundations. The
    decision of the New Zealand Court of Appeal in Stieller v. Porirua
    City Council
    [1986] 1 N.Z.L.R. 84 is no less striking. In that case
    the plaintiffs had bought a house under construction. It was found
    in due course that the weather-boards on the exterior of the house
    were not of the standard required by the building byelaws. The
    court held the local authority liable in damages for their failure to
    discover this on inspection notwithstanding that the condition of
    the weather-boards never represented in any sense a danger to
    persons or property.

    The present position in our own jurisdiction

    Here, as Lord Keith of Kinkel has pointed out, we have
    shown a marked inclination to confine the Anns doctrine within
    narrow limits, as in Governors of the Peabody Donation Fund v.
    Sir Lindsay Parkinson & Co. Ltd.
    [1985] AC 210 and Curran v.
    Northern Ireland Co-ownership Housing Association Ltd.
    [1987] A.C.
    718, and most recently, in examining the liability in tort of a
    builder for defects in the quality of a building which presented no
    danger, the reasoning of the speeches in D. & F. Estates Ltd. v.
    Church Commissioners for England
    [1989] AC 177 has gone far to
    question the principles on which the doctrine rests. Meanwhile,
    uncertainty in the law has inevitably been a fertile breeding
    ground for litigation and the Court of Appeal have grappled as
    best they could with the problem of seeking to determine where
    the limits of the doctrine are to be drawn: see for example
    Investors in Industry Commercial Properties Ltd. v. South
    Bedfordshire District Council
    [1986] Q.B. 1034 and Richardson v.
    West Lindsey District Council
    [1990] 1 W.L.R. 522. Sooner or
    later, in this unhappy situation, a direct challenge to the authority
    of Anns was inevitable. Perhaps it is unfortunate that it did not
    come sooner, but the House could not, I think, have contemplated
    departing from the decision of an Appellate Committee so
    eminently constituted unless directly invited to do so. Now that
    the challenge has to be faced, I believe, for reasons which I hope
    will become apparent, that the choice before the House lies
    between following Australia and rejecting Anns altogether or
    following Canada and New Zealand in carrying the Anns doctrine a
    large, legislative step forward to its logical conclusion and holding
    that the scope of the duty of care, imposed by the law on local

    - 19 -

    authorities for the negligent performance of their functions under
    the relevant statutes, embraces all economic loss sustained by the
    owner or occupier of a building by reason of defects in it arising
    from construction in breach of building byelaws or regulations.

    Dangerous defects and defects of quality

    If a manufacturer negligently puts into circulation a chattel
    containing a latent defect which renders it dangerous to persons or
    property, the manufacturer, on the well known principles
    established by Donoghue v. Stevenson [1932] AC 562, will be
    liable in tort for injury to persons or damage to property which
    the chattel causes. But if a manufacturer produces and sells a
    chattel which is merely defective in quality, even to the extent
    that it is valueless for the purpose for which it is intended, the
    manufacturer's liability at common law arises only under and by
    reference to the terms of any contract to which he is a party in
    relation to the chattel; the common law does not impose on him
    any liability in tort to persons to whom he owes no duty in
    contract but who, having acquired the chattel, suffer economic loss
    because the chattel is defective in quality. If a dangerous defect
    in a chattel is discovered before it causes any personal injury or
    damage to property, because the danger is now known and the
    chattel cannot be safely be used unless the defect is repaired, the
    defect becomes merely a defect in quality. The chattel is either
    capable of repair at economic cost or it is worthless and must be
    scrapped. In either case the loss sustained by the owner or hirer
    of the chattel is purely economic. It is recoverable against any
    party who owes the loser a relevant contractual duty. But it is
    not recoverable in tort in the absence of a special relationship of
    proximity imposing on the tortfeasor a duty of care to safeguard
    the plaintiff from economic loss. There is no such special
    relationship between the manufacturer of a chattel and a remote
    owner or hirer.

    I believe that these principles are equally applicable to
    buildings. If a builder erects a structure containing a latent
    defect which renders it dangerous to persons or property, he will
    be liable in tort for injury to persons or damage to property
    resulting from that dangerous defect. But if the defect becomes
    apparent before any injury or damage has been caused, the loss
    sustained by the building owner is purely economic. If the defect
    can be repaired at economic cost, that is the measure of the loss.
    If the building cannot be repaired, it may have to be abandoned as
    unfit for occupation and therefore valueless. These economic
    losses are recoverable if they flow from breach of a relevant
    contractual duty, but, here again, in the absence of a special
    relationship of proximity they are not recoverable in tort. The
    only qualification I would make to this is that, if a building stands
    so close to the boundary of the building owner's land that after
    discovery of the dangerous defect it remains a potential source of
    injury to persons or property on neighbouring land or on the
    highway, the building owner ought, in principle, to be entitled to
    recover in tort from the negligent builder the cost of obviating
    the danger, whether by repair or by demolition, so far as that cost
    is necessarily incurred in order to protect himself from potential
    liability to third parties.

    - 20 -

    The fallacy which, in my opinion, vitiates the judgments of
    Lord Denning M.R. and Sachs L.J. in Dutton [1972] 1 Q.B. 373 is
    that they brush these distinctions aside as of no consequence: see
    per Lord Denning M.R., at p. 396D-F, and per Sachs L.J., at pp.
    403H-404B. Stamp L.J., on the other hand, fully understood and
    appreciated them and his statement of the applicable principles as
    between the building owner and the builder, at p. 414D-H, seems
    to me unexceptionable. He rested his decision in favour of the
    plaintiff against the local authority on a wholly distinct principle
    which will require separate examination.

    The complex structure theory

    In my speech in D. & F. Estates at pp. 206G-207H I mooted
    the possibility that in complex structures or complex chattels one
    part of a structure or chattel might, when it caused damage to
    another part of the same structure or chattel, be regarded in the
    law of tort as having caused damage to "other property" for the
    purpose of the application of Donoghue v. Stevenson principles. I
    expressed no opinion as to the validity of this theory, but put it
    forward for consideration as a possible ground on which the facts
    considered in Anns [1978] AC 728 might be distinguishable from
    the facts which had to be considered in D. & F. Estates itself. I
    shall call this for convenience "the complex structure theory" and
    it is, so far as I can see, only if and to the extent that this
    theory can be affirmed and applied that there can be any escape
    from the conclusions I have indicated above under the rubric
    "Dangerous defects and defects of quality."

    The complex structure theory has, so far as I know, never
    been subjected to express and detailed examination in any English
    authority. I shall not attempt a review of the numerous
    authorities which bear upon it in the different state jurisdictions in
    the United States of America. However, some significant
    landmarks must be mentioned. In Quackenbush v. Ford Motor Co.,
    153 N.Y.S. 131, a decision of the Appellate Division of the
    Supreme Court of New York, the plaintiff recovered damages in
    tort from the manufacturer for damage to her Ford motor car
    caused by an accident attributable to faulty manufacture of the
    brakes. It is at least highly doubtful if the reasoning of this
    decision can now be supported consistently with the unanimous
    opinion of the United States Supreme Court in East River
    Steamship Corporation v. Transamerica Delaval Inc.,
    (1986) 106 S.
    Ct. 2295 that a manufacturer incurs no liability in tort for damage
    occasioned by a defect in a product which injures itself.
    Blackmun J., delivering the opinion of the court, said, at p. 2302:

    "We realize that the damage may be qualitative, occurring
    through gradual deterioration or internal breakage. Or it
    may be calamitous. . . . But either way, since by definition
    no person or other property is damaged, the resulting loss is
    purely economic. Even when the 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."

    - 21 -

    Quackenbush is, in any event, no authority for the
    proposition that, once a defect in a complex chattel is discovered,
    there is a remedy in tort against the manufacturer on the ground
    that the cost of repairing the defect was necessarily incurred in
    order to prevent further damage to other parts of the chattel. A
    striking illustration of this is Transworld Airlines Inc. v. Curtiss-
    Wright Corporation
    (1955) 148 N.Y.S. 2d 284 in which the airline,
    having discovered defects in the engines fitted to some of their
    planes, fortunately before any accident occurred, chose not to sue
    the plane manufacturer in contract, but sued the engine
    manufacturer in tort. The manufacturer was held not liable. This
    and other relevant American authorities are extensively reviewed
    in the illuminating judgment of the British Columbia Court of
    Appeal delivered by Tysoe J.A. in Rivtow Marine Ltd v.
    Washington Iron Works
    [1972] 3 W.W.R. 735. The court held that
    the manufacturers were not liable in tort to the hirers of a crane
    for the cost of repair rendered necessary when the crane was
    found to be dangerously defective in use. This decision was
    affirmed by the Supreme Court of Canada by a majority of seven
    to two [1973] 6 W.W.R. 692. Since Lord Wilberforce in Anns
    referred with approval to the dissenting judgment of Laskin J. in
    that case, which he described, at p. 760, as "of strong persuasive
    force," I have read and re-read that judgment with the closest
    attention. I have to say, with all respect, that I find it wholly
    unconvincing. It depends on the same fallacy as that which
    vitiates the judgments of Lord Denning M.R. and Sachs L3 in
    Dutton. In particular, in equating the damage sustained in
    repairing the chattel to make it safe with the damage which would
    have been suffered if the latent defect had never been discovered
    and the chattel had injured somebody in use, the judgment ignores
    the circumstance that once a chattel is known to be dangerous it
    is simply unusable. If I buy a second hand car and find it to be
    faulty, it can make no difference to the manufacturer's liability in
    tort whether the fault is in the brakes or in the engine, i.e.
    whether the car will not stop or will not start. In either case the
    car is useless until repaired. The manufacturer is no more liable
    in tort for the cost of the repairs in the one case than in the
    other.

    Bowen v. Paramount Builders (Hamilton) Ltd. [1977] 1
    N.Z.L.R. 394 was a case where the plaintiff building owner sued
    the builder in tort for the cost of making good damage caused by
    subsidence caused by inadequate foundations. The trial judge
    dismissed the claim on the ground that the principle of Donoghue
    v. Stevenson
    did not apply to entitle the plaintiff to recover in
    tort for a defect in the quality of the building. The judgments of
    the New Zealand Court of Appeal to the opposite effect were
    referred to with approval by Lord Wilberforce in Anns. The
    critical paragraph from the judgment of Richmond P., at p. 410,
    reads:

    "Does damage to the house itself give rise to a cause of
    action? As I have already said, I agree with Speight J. that
    the principles laid down in Donoghue v. Stevenson [1932]
    A.C. 562 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

    - 22 -

    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, p.
    665, sec. 101, and Quackenbush v. Ford Motor Co., 167
    Appellate Division 433, 153 N.Y.S. 131 (1915). 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."

    Richmond P. goes on to hold that the measure of damages
    would include the whole cost of remedial works plus any
    diminution in value of the house in so far as it was impossible to
    effect a complete remedy.

    I cannot see any way in which the reasoning in the
    paragraph quoted and the consequences in relation to the measure
    of damages can in principle be supported except by an extreme
    application of the complex structure theory treating each part of
    the entire structure as a separate item of property. But such an
    application of the theory seems to me quite unrealistic. The
    reality is that the structural elements in any building form a
    single indivisible unit of which the different parts are essentially
    interdependent. To the extent that there is any defect in one
    part of the structure it must to a greater or lesser degree
    necessarily affect all other parts of the structure. Therefore any
    defect in the structure is a defect in the quality of the whole and
    it is quite artificial, in order to impose a legal liability which the
    law would not otherwise impose, to treat a defect in an integral
    structure, so far as it weakens the structure, as a dangerous
    defect liable to cause damage to "other property."

    A critical distinction must be drawn here between some part
    of a complex structure which is said to be a "danger" only because
    it does not perform its proper function in sustaining the other
    parts and some distinct item incorporated in the structure which
    positively malfunctions so as to inflict positive damage on the
    structure in which it is incorporated. Thus, if a defective central
    heating boiler explodes and damages a house or a defective
    electrical installation malfunctions and sets the house on fire, I
    see no reason to doubt that the owner of the house, if he can
    prove that the damage was due to the negligence of the boiler
    manufacturer in the one case or the electrical contractor on the
    other, can recover damages in tort on Donoghue v. Stevenson
    [1932] AC 562 principles. But the position in law is entirely
    different where, by reason of the inadequacy of the foundations of
    the building to support the weight of the superstructure,
    differential settlement and consequent cracking occurs. Here, once
    the first cracks appear, the structure as a whole is seen to be
    defective and the nature of the defect is known. Even if,
    contrary to my view, the initial damage could be regarded as
    damage to other property caused by a latent defect, once the

    - 23 -

    defect is known the situation of the building owner is analogous to
    that of the car owner who discovers that the car has faulty
    brakes. He may have a house which, until repairs are effected, is
    unfit for habitation, but, subject to the reservation I have
    expressed with respect to ruinous buildings at or near the boundary
    of the owner's property, the building no longer represents a source
    of danger and as it deteriorates will only damage itself.

    For these reasons the complex structure theory offers no
    escape from the conclusion that damage to a house itself which is
    attributable to a defect in the structure of the house is not
    recoverable in tort on Donoghue v. Stevenson principles, but
    represents purely economic loss which is only recoverable in
    contract or in tort by reason of some special relationship of
    proximity which imposes on the tortfeasor a duty of care to
    protect against economic loss.

    The relative positions of the builder and the local authority

    I have so far been considering the potential liability of a
    builder for negligent defects in the structure of a building to
    persons to whom he owes no contractual duty. Since the relevant
    statutory function of the local authority is directed to no other
    purpose than securing compliance with building byelaws or
    regulations by the builder, I agree with the view expressed in Anns
    [1978] AC 728 and by the majority of the Court of Appeal in
    Dutton [1972] 1 Q.B. 373 that a negligent performance of that
    function can attract no greater liability than attaches to the
    negligence of the builder whose fault was the primary tort giving
    rise to any relevant damage. I am content for present purposes to
    assume, though I am by no means satisfied that the assumption is
    correct, that where the local authority, as in this case or in
    Dutton, have in fact approved the defective plans or inspected the
    defective foundations and negligently failed to discover the defect,
    their potential liability in tort is coextensive with that of the
    builder.

    Only Stamp L.J. in Dutton was prepared to hold that the
    law imposed on the local authority a duty of care going beyond
    that imposed on the builder and extending to protection of the
    building owner from purely economic loss. I must return later to
    consider the question of liability for economic loss more generally,
    but here I need only say that I cannot find in Hedley Byrne & Co.
    Ltd. v. Heller & Partners Ltd.
    [1964] AC 465 or Dorset Yacht
    Co. Ltd. v. Home Office
    [1970] AC 1004 any principle applicable
    to the circumstances of Dutton or the present case that provides
    support for the conclusion which Stamp L.J. sought to derive from
    those authorities.

    Imminent danger to health or safety

    A necessary element in the building owner's cause of action
    against the negligent local authority, which does not appear to
    have been contemplated in Dutton but which, it is said in Anns,
    must be present before the cause of action accrues, is that the
    state of the building is such that there is present or imminent
    danger to the health or safety of persons occupying it.
    Correspondingly the damages recoverable are said to include the
    amount of expenditure necessary to restore the building to a

    - 24 -

    condition in which it is no longer such a danger, but presumably
    not any further expenditure incurred in any merely qualitative
    restoration. I find these features of the Anns doctrine very
    difficult to understand. The theoretical difficulty of reconciling
    this aspect of the doctrine with previously accepted legal principle
    was pointed out by Lord Oliver of Aylmerton in D. & F. Estates
    [1989] AC 177, 212D-213D. But apart from this there are, as it
    appears to me, two insuperable difficulties arising from the
    requirement of imminent danger to health or safety as an
    ingredient of the cause of action which lead to quite irrational and
    capricious consequences in the application of the Anns doctrine.
    The first difficulty will arise where the relevant defect in the
    building, when it is first discovered, is not a present or imminent
    danger to health or safety. What is the owner to do if he is
    advised that the building will gradually deteriorate, if not repaired,
    and will in due course become a danger to health and safety, but
    that the longer he waits to effect repairs the greater the cost will
    be? Must he spend £1,000 now on the necessary repairs with no
    redress against the local authority? Or is he entitled to wait until
    the building has so far deteriorated that he has a cause of action
    and then to recover from the local authority the £5,000 which the
    necessary repairs are now going to cost? I can find no answer to
    this conundrum. A second difficulty will arise where the latent
    defect is not discovered until it causes the sudden and total
    collapse of the building, which occurs when the building is
    temporarily unoccupied and causes no damage to property except
    to the building itself. The building is now no longer capable of
    occupation and hence cannot be a danger to health or safety. It
    seems a very strange result that the building owner should be
    without remedy in this situation if he would have been able to
    recover from the local authority the full cost of repairing the
    building if only the defect had been discovered before the building
    fell down.

    Liability for economic loss

    All these considerations lead inevitably to the conclusion
    that a building owner can only recover the cost of repairing a
    defective building on the ground of the authority's negligence in
    performing its statutory function of approving plans or inspecting
    buildings in the course of construction if the scope of the
    authority's duty of care is wide enough to embrace purely
    economic loss. The House has already held in D. & F. Estates
    that a builder, in the absence of any contractual duty or of a
    special relationship of proximity introducing the Hedley Byrne
    principle of reliance, owes no duty of care in tort in respect of
    the quality of his work. As I pointed out in D. & F. Estates, to
    hold that the builder owed such a duty of care to any person
    acquiring an interest in the product of the builder's work would be
    to impose upon him the obligations of an indefinitely transmissible
    warranty of quality.

    By section 1 of the Defective Premises Act 1972 Parliament
    has in fact imposed on builders and others undertaking work in the
    provision of dwellings the obligations of a transmissible warranty
    of the quality of their work and of the fitness for habitation of
    the completed dwelling. But besides being limited to dwellings,
    liability under the Act is subject to a limitation period of six
    years from the completion of the work and to the exclusion

    - 25 -

    provided for by section 2. It would be remarkable to find that
    similar obligations in the nature of a transmissible warranty of
    quality, applicable to buildings of every kind and subject to no
    such limitations or exclusions as are imposed by the Act of 1972,
    could be derived from the builder's common law duty of care or
    from the duty imposed by building byelaws or regulations. In Anns
    Lord Wilberforce expressed the opinion that a builder could be held
    liable for a breach of statutory duty in respect of buildings which
    do not comply with the byelaws. But he cannot, I think, have
    meant that the statutory obligation to build in conformity with the
    byelaws by itself gives rise to obligations in the nature of
    transmissible warranties of quality. If he did mean that, I must
    respectfully disagree. I find it impossible to suppose that anything
    less than clear express language such as is used in section 1 of
    the Act of 1972 would suffice to impose such a statutory
    obligation.

    As I have already said, since the function of a local
    authority in approving plans or inspecting buildings in course of
    construction is directed to ensuring that the builder complies with
    building byelaws or regulations, I cannot see how, in principle, the
    scope of the liability of the authority for a negligent failure to
    ensure compliance can exceed that of the liability of the builder
    for his negligent failure to comply.

    There may, of course, be situations where, even in the
    absence of contract, there is a special relationship of proximity
    between builder and building owner which is sufficiently akin to
    contract to introduce the element of reliance so that the scope of
    the duty of care owed by the builder to the owner is wide enough
    to embrace purely economic loss. The decision in Junior Books
    Ltd v. Veitchi Co. Ltd.
    [1983] 1 AC 520 can, I believe, only be
    understood on this basis.

    In Council of the Shire of Sutherland v. Heyman 157 C.L.R.
    424 the critical role of the reliance principle as an element in the
    cause of action which the plaintiff sought to establish is the
    subject of close examination, particularly in the judgment of Mason
    J. The central theme of his judgment, and a subordinate theme in
    the judgments of Brennan and Deane JJ, who together with Mason
    J formed the majority rejecting the Anns doctrine, is that a duty
    of care of a scope sufficient to make the authority liable for
    damage of the kind suffered can only be based on the principle of
    reliance and that there is nothing in the ordinary relationship of a
    local authority, as statutory supervisor of building operations, and
    the purchaser of a defective building capable of giving rise to such
    a duty. I agree with these judgments. It cannot, I think, be
    suggested, nor do I understand Anns or the cases which have
    followed Anns in Canada and New Zealand to be in fact
    suggesting, that the approval of plans or the inspection of a
    building in the course of construction by the local authority in
    performance of their statutory function and a subsequent purchase
    of the building by the plaintiff are circumstances in themselves
    sufficient to introduce the principle of reliance which is the
    foundation of a duty of care of the kind identified in Hedley
    Byrne.

    In Dutton Lord Denning M.R. said, at pp. 397-398:

    - 26 -

    "Mrs. Dutton has suffered a grievous loss. The house fell
    down without any fault of hers. She is in no position
    herself to bear the loss. Who ought in justice to bear it?
    I should think those who were responsible. Who are they?
    In the first place, the builder was responsible. It was he
    who laid the foundations so badly that the house fell down.
    In the second place, the council's inspector was responsible.
    It was his job to examine the foundations to see if they
    would take the load of the house. He failed to do it
    properly. In the third place, the council should answer for
    his failure. They were entrusted by Parliament with the
    task of seeing that houses were properly built. They
    received public funds for the purpose. The very object was
    to protect purchasers and occupiers of houses. Yet they
    failed to protect them. Their shoulders are broad enough to
    bear the loss."

    These may be cogent reasons of social policy for imposing liability
    on the authority. But the shoulders of a public authority are only
    "broad enough to bear the loss" because they are financed by the
    public at large. It is pre-eminently for the legislature to decide
    whether these policy reasons should be accepted as sufficent for
    imposing on the public the burden of providing compensation for
    private financial losses. If they do so decide, it is not difficult
    for them to say so.


    I would allow the appeal.

    LORD BRANDON OF OAKBROOK

    My Lords,

    I have had the advantage of reading in draft the speech
    prepared by my noble and learned friend, Lord Keith of Kinkel. I
    agree with it, and for the reasons which he gives I consider that
    the House should depart from its previous decision in Anns v.
    Merton London Borough Council
    [1978] AC 728 to the extent
    proposed by him, and that the appeal should be allowed
    accordingly.

    LORD ACKNER

    My Lords,

    I have had the advantage of reading in draft the speeches
    of my noble and learned friends Lord Keith of Kinkel, Lord Bridge
    of Harwich, Lord Oliver of Aylmerton and Lord Jauncey of
    Tullichettle. For the reasons which they have given, I too would
    allow this appeal.

    - 27 -

    LORD OLIVER OF AYLMERTON

    My Lords,

    I have had the advantage of reading in draft the speeches
    prepared by my noble and learned friends, Lord Keith of Kinkel
    and Lord Bridge of Harwich. For the reasons which they have
    given I too would allow this appeal. Since, however, this involves
    departing from a seminal decision of this House which has stood
    for a considerable period and which has had the most profound
    influence on the development of the law of negligence both in the
    United Kingdom and in other jurisdictions it is, I think, only right
    that I should also state my reasons independently.

    In the 13 years which have elapsed since the decision of
    this House in Anns v. Merton London Borough Council [1978] A.C.
    728 the anomalies which arise from its literal application and the
    logical difficulty in relating it to the previously established
    principles of the tort of negligence have become more and more
    apparent. This appeal and the appeal in the case of Department
    of the Environment v. Thomas Bates and Sons Ltd.
    which was
    heard shortly before it, have highlighted some of the problems
    which Anns has created and underline the urgent need for it now
    to be re-examined.

    In approaching such a re-examination there are number of
    points to be made at the outset. First, it has to be borne in
    mind that neither in Anns nor in Dutton v. Bognor Regis Urban
    District Council
    [1972] 1 Q.B. 373, which preceded it, was the
    liability of the local authority based upon the proposition that the
    Public Health Act 1936 gave rise to an action by a private
    individual for breach of statutory duty of the type contemplated in
    Cutler v. Wandsworth Stadium Ltd. [1949] A.C. 398, a type of
    claim quite distinct from a claim in negligence (see London
    Passenger Transport Board v. Upson
    [1949] A.C. 155, 168, per Lord
    Wright.) The duty of the local authority was, as Lord Wilberforce
    stressed in the course of his speech in Anns, at p. 758, the
    ordinary common law duty to take reasonable care, no more and
    no less.

    Secondly, in neither case was it possible to allege
    successfully that the plaintiffs had relied upon the proper
    performance by the defendant of its Public Health Act duties so
    as to invoke the principles expounded in Hedley Byrne & Co. Ltd.
    v. Heller & Partners Ltd.
    [1964] AC 465. In the course of his
    speech in Anns, at p.p. 768-769, Lord Salmon was at pains to
    emphasise that the claim had nothing to do with reliance.

    Thirdly, the injury of which the plaintiffs complained in
    Anns was not "caused" by the defendant authority in any accepted
    sense of the word. The complaint was not of what the defendant
    had done but of what it had not done. It had failed to prevent
    the builder of the flats from erecting a sub-standard structure. It
    is true that in Dutton the basis for liability was said, by both
    Lord Denning M.R. and Sachs L.J., to rest on the defendant's
    ability to control the building operation, from which it might be
    inferred that it was so involved in the operation as to be directly
    responsible for the defective foundations. This, whilst it goes no
    way towards resolving many of the difficulties arising from the

    - 28 -

    decision, might be thought perhaps to provide a more acceptable
    basis for liability, but it was specifically rejected in Anns (see per
    Lord Wilberforce, at p. 754).

    Fourthly, although in neither case was the builder who had
    actually created the defect represented at the hearing, the fact
    that the claim was, in essence, one based upon the failure of the
    defendant to prevent the infliction of tortious injury by the builder
    rendered it necessary to determine also the question of what, if
    any, liability lay upon him. If the builder was under no obligation
    to the plaintiffs to take reasonable care to provide proper
    foundations it is difficult to see how the defendant authority could
    be liable for failing to prevent what was, vis-a-vis the plaintiffs,
    lawful conduct on his part save on the footing that the Act of
    1936 imposed an absolute statutory duty to ensure that no sub-
    standard building was erected. But, as already mentioned, the
    action was not one for breach of statutory duty. The liability of
    the local authority and that of the builder are not, therefore,
    logically separable.

    Finally, despite the categorisation of the damage as
    "material, physical damage" (Anns, per Lord Wilberforce, at p. 759)
    it is, I think, incontestable on analysis that what the plaintiffs
    suffered was pure pecuniary loss and nothing more. If one asks,
    "What were the damages to be awarded for?" clearly they were
    not to be awarded for injury to the health or person of the
    plaintiffs for they had suffered none. But equally clearly, although
    the "damage" was described, both in the Court of Appeal in
    Dutton and in this House in Anns, as physical or material damage,
    this simply does not withstand analysis. To begin with, it makes
    no sort of sense to accord a remedy where the defective nature of
    the structure has manifested itself by some physical sympton, such
    as a crack or a fractured pipe, but to deny it where the defect
    has been brought to light by, for instance, a structural survey in
    connection with a proposed sale. Moreover, the imminent danger
    to health or safety which was said to be the essential ground of
    the action was not the result of the physical manifestations which
    had appeared but of the inherently defective nature of the
    structure which they revealed. They were merely the outward
    signs of a deterioration resulting from the inherently defective
    condition with which the building had been brought into being from
    its inception and cannot properly be described as damage caused to
    the building in any accepted use of the word "damage."

    In the speech of my noble and learned friend, Lord Bridge
    of Harwich, and in my own speech in D. & F. Estates Ltd. v.
    Church Commissioners for England
    [1989] A.C. 167 there was
    canvassed what has been called "the complex structure theory."
    This has been rightly criticised by academic writers although I
    confess that I thought that both my noble and learned friend and I
    had made it clear that it was a theory which was not embraced
    with any enthusiasm but was advanced as the only logically
    possible explanation of the categorisation of the damage in Anns
    as "material, physical damage." My noble and learned friend has,
    in the course of his speech in the present case, amply
    demonstrated the artificiality of the theory and, for the reasons
    which he has given, it must be rejected as a viable explanation of
    the underlying basis for the decision in Anns. However that
    decision is analysed, therefore, it is in the end inescapable that

    - 29 -

    the only damage for which compensation was to be awarded and
    which formed the essential foundation of the action was pecuniary
    loss and nothing more. The injury which the plaintiff suffers in
    such a case is that his consciousness of the possible injury to his
    own health or safety or that of others puts him in a position in
    which, in order to enable him either to go on living in the
    property or to exploit its financial potentiality without that risk,
    whether substantial or insubstantial, he has to expend money in
    making good the defects which have now become patent. In the
    course of his speech in Anns [1978] AC 728, Lord Wilberforce
    acknowledged the assistance that he had derived from the
    dissenting judgment of Laskin J. in Rivtow Marine Ltd. v.
    Washington Iron Works
    [1973] 6 W.W.R. 692. That case presents
    an interesting parallel, though not a precise one, for the danger
    there was not to the plaintiffs but to their workmen. The
    expenditure which they were there seeking to recover and for
    which Laskin J. would have reimbursed them was incurred not
    because it was necessary in order to rescue employees or others
    from imminent injury, for the crane was not dangerous in itself
    and the potential danger was known and foreseen. It was a danger
    to them only if the plaintiffs chose to go on using it for the
    purpose for which it was designed and the expenditure was
    incurred in order to enable them to reap such economic advantages
    as lay in their continued ability to use it for that purpose.

    The fact is that the categorisation of the damage in Anns
    as "material, physical damage," whilst, at first sight, lending to
    the decision some colour of consistency with the principle of
    Donoghue v. Stevenson [1932] AC 562, has served to obscure not
    only the true nature of the claim but, as a result, the nature and
    scope of the duty upon the breach of which the plaintiffs in that
    case were compelled to rely.

    It does not, of course, at all follow as a matter of
    necessity from the mere fact that the only damage suffered by a
    plaintiff in an action for the tort of negligence is pecuniary or
    "economic" that his claim is bound to fail. It is true that, in an
    uninterrupted line of cases since 1875, it has consistently been
    held that a third party cannot successfully sue in tort for the
    interference with his economic expectations or advantage resulting
    from injury to the person or property of another person with whom
    he has or is likely to have a contractual relationship (see Cattle v.
    Stockton Waterworks Co.
    (1875) L.R. 10 Q.B. 453; Simpson & Co.
    v. Thomson
    (1877) 3 App.Cas. 279; La Societe Anonyme de
    Remorquage a Helice v. Bennetts
    [1911] 1 K.B. 243). That
    principle was applied more recently by Widgery J. in Weller & Co.
    v. Foot and Mouth Disease Research Institute
    [1966] 1 Q.B. 569
    and received its most recent reiteration in the decision of this
    House in Leigh and Sillavan Ltd. v. Aliakmon Shipping Co. Ltd.
    [1986] AC 785. But it is far from clear from these decisions
    that the reason for the plaintiff's failure was simply that the only
    loss sustained was "economic." Rather they seem to have been
    based either upon the remoteness of the damage as a matter of
    direct causation or, more probably, upon the "floodgates" argument
    of the impossibility of containing liability within any acceptable
    bounds of the law were to permit such claims to succeed. The
    decision of this House in Morrison Steamship Co. Ltd. v. Greystoke
    Castle (Cargo Owners)
    [1947] A.C. 265 demonstrates that the mere
    fact that the primary damage suffered by a plaintiff is pecuniary

    - 30 -

    is no necessary bar to an action in negligence given the proper
    circumstances - in that case, what was said to be the "joint
    venture" interest of shipowners and the owners of cargo carried on
    board - and if the matter remained in doubt that doubt was
    conclusively resolved by the decision of this House in Hedley Byrne
    & Co. Ltd. v. Heller & Partners Ltd.
    [1964] AC 465 where Lord
    Devlin, at p. 517 convincingly demonstrated the illogicality of a
    distinction between financial loss caused directly and financial loss
    resulting from physical injury to personal property.

    The critical question, as was pointed out in the analysis of
    Brennan J. in his judgment in Council of the Shire of Sutherland v.
    Heyman
    (1985) 157 C.L.R. 424, is not the nature of the damage in
    itself, whether physical or pecuniary, but whether the scope of the
    duty of care in the circumstances of the case is such as to
    embrace damage of the kind which the plaintiff claims to have
    sustained (see Caparo Industries Plc, v. Dickman [1990] 2 W.L.R.
    358). The essential question which has to be asked in every case,
    given that damage which is the essential ingredient of the action
    has occurred, is whether the relationship between the plaintiff and
    the defendant is such - or, to use the favoured expression, whether
    it is of sufficent "proximity" - that it imposes upon the latter a
    duty to take care to avoid or prevent that loss which has in fact
    been sustained. That the requisite degree of proximity may be
    established in circumstances in which the plaintiff's injury results
    from his reliance upon a statement or advice upon which he was
    entitled to rely and upon which it was contemplated that he would
    be likely to rely is clear from Hedley Byrne and subsequent cases,
    but Anns [1978] AC 728 was not such a case and neither is the
    instant case. It is not, however, necessarily to be assumed that
    the reliance cases form the only possible category of cases in
    which a duty to take reasonable care to avoid or prevent
    pecuniary loss can arise. Morrison Steamship Co. Ltd. v.
    Greystoke Castle (Cargo Owners),
    for instance, clearly was not a
    reliance case. Nor indeed was Ross v. Caunters [1980] Ch. 297 so
    far as the disappointed beneficiary was concerned. Another
    example may be Ministry of Housing and Local Government v.
    Sharp
    [1980] 2 Q.B. 223, although this may, on analysis, properly
    be categorised as a reliance case.

    Nor is it self-evident logically where the line is to be
    drawn. Where, for instance, the defendant's careless conduct
    results in the interruption of the electricity supply to business
    premises adjoining the highway, it is not easy to discern the logic
    in holding that a sufficient relationship of proximity exists between
    him and a factory owner who has suffered loss because material in
    the course of manufacture is rendered useless but that none exists
    between him and the owner of, for instance, an adjoining
    restaurant who suffers the loss of profit on the meals which he is
    unable to prepare and sell. In both cases the real loss is
    pecuniary. The solution to such borderline cases has so far been
    achieved pragmatically (see Spartan Steel & Alloys Ltd. v. Martin
    & Co. (Contractors) Ltd.
    [1973] QB 27) not by the application of
    logic but by the perceived necessity as a matter of policy to place
    some limits - perhaps arbitrary limits - to what would otherwise
    be an endless, cumulative causative chain bounded only by
    theoretical foreseeability.

    - 31 -

    I frankly doubt whether, in searching for such limits, the
    categorisation of the damage as "material," "physical," "pecuniary"
    or "economic" provides a particularly useful contribution. Where it
    does, I think, serve a useful purpose is in identifying those cases
    in which it is necessary to search for and find something more
    than the mere reasonable foreseeability of damage which has
    occurred as providing the degree of "proximity" necessary to
    support the action. In his classical exposition in Donoghue v.
    Stevenson
    [1932] AC 562, 580-581, Lord Atkin was expressing
    himself in the context of the infliction of direct physical injury
    resulting from a carelessly created latent defect in a manufactured
    product. In his analysis of the duty in those circumstances he
    clearly equated "proximity" with the reasonable foresight of
    damage. In the straightforward case of the direct infliction of
    physical injury by the act of the plaintiff there is, indeed, no need
    to look beyond the foreseeability by the defendant of the result in
    order to establish that he is in a "proximate" relationship with the
    plaintiff. But, as was pointed out by Lord Diplock in Dorset
    Yacht Co. Ltd. v. Home Office
    [1970] AC 1004, at p. 1060, Lord
    Atkin's test, though a useful guide to characteristics which will be
    found to exist in conduct and relationships giving rise to a legal
    duty of care, is manifestly false if misused as a universal; and
    Lord Reid, in the course of his speech in the same case,
    recognised that the statement of principle enshrined in that test
    necessarily required qualification in cases where the only loss
    caused by the defendant's conduct was economic. The infliction of
    physical injury to the person or property of another universally
    requires to be justified. The causing of economic loss does not.
    If it is to be categorised as wrongful it is necessary to find some
    factor beyond the mere occurrence of the loss and the fact that
    its occurrence could be foreseen. Thus the categorisation of
    damage as economic serves at least the useful purpose of
    indicating that something more is required and it is one of the
    unfortunate features of Anns that it resulted initially in this
    essential distinction being lost sight of.

    The two-stage test propounded by Lord Wilberforce in Anns
    was at first interpreted as indicating as a universal proposition
    that the relationship between defendant and plaintiff encapsulated
    in the word "proximity" arose from the foreseeability of damage
    alone regardless of whether the case was one of direct physical
    injury or of pure pecuniary loss. Both Dutton [1972] 1 Q.B. 373
    and Bowen v. Paramount Builders (Hamilton) Ltd. [1977] 1 N.Z.L.R.
    394 are examples of the application of Lord Atkin's principle as a
    universal. There can, of course, be no doubt that it can
    reasonably be foreseen that if an inherently defective house is
    built or an inherently defective chattel is manufactured some
    future owner will be likely to sustain loss when the defect comes
    to light, if only because it is less valuable than it was thought to
    be when he bought and paid for it. A series of decisions in this
    House and in the Privy Council since Anns, however, have now
    made it clear beyond argument that in cases other than cases of
    direct physical injury the reasonable foreseeability of damage is
    not of itself sufficient and that there has to be sought in addition
    in the relationship between the parties that elusive element
    comprehended in the expression "proximity" (see Governors of the
    Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985]
    A.C. 210; Yuen Kun Yeu v. Attorney-General of Hong Kong [1988]
    A.C. 175; Hill v. Chief Constable of West Yorkshire [1989] A.C.

    - 32 -

    53). It is an expression which persistently defies definition but my
    difficulty in rationalising the basis of Dutton and Anns is and has
    always been not so much in defining it as in discerning the
    circumstances from which it could have been derived. For reasons
    which I have endeavoured to explain, the starting-point in seeking
    to rationalise these decisions must, as it seems to me, be to
    establish the basis of the liability of the person who is the direct
    and immediate cause of the plaintiff's loss. Anyone, whether he
    be a professional builder or a do-it-yourself enthusiast, who builds
    or alters a semi-permanent structure must be taken to contemplate
    that at some time in the future it will, whether by purchase, gift
    or inheritance, come to be occupied by another person and that if
    it is defectively built or altered it may fall down and injure that
    person or his property or may put him in a position in which, if
    he wishes to occupy it safely or comfortably, he will have to
    expend money on rectifying the defect. The case of physical
    injury to the owner or his licensees or his or their property
    presents no difficulty. He who was responsible for the defect -
    and it will be convenient to refer to him compendiously as "the
    builder" - is, by the reasonable foreseeability of that injury, in a
    proximate "neighbour" relationship with the injured person on
    ordinary Donoghue v. Stevenson principles. But when no such
    injury has occurred and when the defect has been discovered and
    is therefore no longer latent, whence arises that relationship of
    proximity required to fix him with responsibility for putting right
    the defect? Foresight alone is not enough but from what else can
    the relationship be derived? Apart from contract, the
    manufacturer of a chattel assumes no responsibility to a third
    party into whose hands it has come for the cost of putting it into
    a state in which it can safely continue to be used for the purpose
    for which it was intended. Anns, of course, does not go so far as
    to hold the builder liable for every latent defect which depreciates
    the value of the property but limits the recovery, and thus the
    duty, to the cost of putting it into a state in which it is no
    longer an imminent threat to the health or safety of the occupant.
    But it is difficult to see any logical basis for such a distinction.
    If there is no relationship of proximity such as to create a duty to
    avoid pecuniary loss resulting from the plaintiff's perception of
    non-dangerous defects, upon what principle can such a duty arise
    at the moment when the defect is perceived to be an imminent
    danger to health? Take the case of an owner-occupier who has
    inherited the property from a derivative purchaser. He suffers, in
    fact, no "loss" save that the property for which he paid nothing is
    less valuable to him by the amount which it will cost him to
    repair it if he wishes to continue to live in it. If one assumes
    the parallel case of one who has come into possession of a
    defective chattel - for instance, a yacht - which may be a danger
    if it is used without being repaired, it is impossible to see upon
    what principle such a person, simply because the chattel has
    become dangerous, could recover the cost of repair from the
    original manufacturer.

    The suggested distinction between mere defect and
    dangerous defect which underlies the judgment of Laskin J. in
    Rivtow Marine Ltd. v. Washington Iron Works [1973] 6 W.W.R. 692
    is, I believe, fallacious. The argument appears to be that because,
    if the defect had not been discovered and someone had been
    injured, the defendant would have been liable to pay damages for
    the resultant physical injury on the principle of Donoghue v.

    - 33 -

    Stevenson it is absurd to deny liability for the cost of preventing
    such injury from ever occurring. But once the danger ceases to
    be latent there never could be any liability. The plaintiff's
    expenditure is not expenditure incurred in minimising the damage
    or in preventing the injury from occurring. The injury will not
    now ever occur unless the plaintiff causes it to do so by courting
    a danger of which he is aware and his expenditure is incurred not
    in preventing an otherwise inevitable injury but in order to enable
    him to continue to use the property or the chattel.

    My Lords, for the reasons which I endeavoured to state in
    the course of my speech in D. & F. Estates Ltd. v. Church
    Commissioners for England
    [1989] AC 177 and which are
    expounded in more felicitous terms both in the speeches of my
    noble and learned friends in the instant case and in that of my
    noble and learned friend, Lord Keith of Kinkel, in Department of
    the Environment v. Thomas Bates and Sons Ltd.,
    I have found it
    impossible to reconcile the liability of the builder propounded in
    Anns with any previously accepted principles of the tort of
    negligence and I am able to see no circumstances from which
    there can be deduced a relationship of proximity such as to render
    the builder liable in tort for pure pecuniary damage sustained by a
    derivative owner with whom he has no contractual or other
    relationship. Whether, as suggested in the speech of my noble and
    learned friend, Lord Bridge of Harwich, he could be held
    responsible for the cost necessarily incurred by a building owner in
    protecting himself from potential liability to third parties is a
    question upon which I prefer to reserve my opinion until the case
    arises, although I am not at the moment convinced of the basis
    for making such a distinction.

    If, then, the law imposes upon the person primarily
    responsible for placing on the market a defective building no
    liability to a remote purchaser for expenditure incurred in making
    good defects which, ex hypothesi, have injured nobody, upon what
    principle is liability in tort to be imposed upon a local authority
    for failing to exercise its regulatory powers so as to prevent
    conduct which, on this hypothesis, is not tortious? Or, to put it
    another way, what is it, apart from the foreseeability that the
    builder's failure to observe the regulations may create a situation
    in which expenditure by a remote owner will be required, that
    creates the relationship of proximity between the authority and the
    remote purchaser? A possible explanation might, at first sight,
    seem to be that the relationship arises from the mere existence of
    the public duty of supervision imposed by the statute. That, I
    think, must have been the view of Stamp L.J. in Dutton [1972] 1
    Q.B. 373, for he regarded the liability of the local authority as
    arising quite independently of that of the builder. His was,
    however, a minority view which derives no support from the
    reasoning of this House in Anns [1978] AC 728 and cannot stand
    up to analysis except on the basis (a) that the damage sustained
    was physical damage and (b) that the local authority, by reason of
    its ability to oversee the operation, was the direct cause of the
    defective construction. Neither of these propositions in my
    judgment is tenable.

    The instant case is, to an extent, a stronger case than
    Anns, because there the authority was under no duty to carry out
    an inspection whereas here there was a clear statutory duty to

    - 34 -

    withold approval of the defective design. This, however, can make
    no difference in principle and the reasoning of the majority in
    Anns, which clearly links the liability of the local authority to
    that of the builder, must equally apply. The local authority's duty
    to future owners of the building to take reasonable care in
    exercising its supervisory function was expressed in Anns to arise
    "on principle," but it is not easy to see what the principle was,
    unless it was simply the foreseeability of possible injury alone,
    which, it is now clear, is not in itself enough. The only existing
    principle upon which liability could be based was that propounded
    in Dorset Yacht [1970] AC 1004, that is to say, that the
    relationship which existed between the authority and the plaintiff
    was such as to give rise to a positive duty to prevent another
    person, the builder, from inflicting pecuniary injury. But in a
    series of decisions in subsequent cases - in particular Curran v.
    Northern Ireland Co-ownership Housing Association
    [1987] A.C. 718
    and Hill v. Chief Constable of West Yorkshire - this House has
    been unable to find in the case of other regulatory agencies with
    powers as wide as or wider than those under the Public Health
    Acts, such a relationship between the regulatory authority and
    members of the public for whose protection the statutory powers
    were conferred (see also Yuen Kun Yeu v. Attorney-General of
    Hong Kong).

    My Lords, I can see no reason why a local authority, by
    reason of its statutory powers under the Public Health Acts or its
    duties under the building regulations, should be in any different
    case. Ex hypothesi there is nothing in the terms or purpose of
    the statutory provisions which support the creation of a private
    law right of action for breach of statutory duty. There is equally
    nothing in the statutory provisions which even suggest that the
    purpose of the statute was to protect owners of buildings from
    economic loss. Nor is there any easily discernible reason why the
    existence of the statutory duties, in contra-distinction to those
    existing in the case of other regulatory agencies, should be held in
    the case of a local authority to create a special relationship
    imposing a private law duty to members of the public to prevent
    the conduct of another person which is not itself tortious. Take
    the simple example of the builder who builds a house with
    inadequate foundations and presents it to his son and daughter-in-
    law as a wedding present. It would be manifestly absurd, if the
    son spends money on rectifying the defect which has come to
    light, to hold him entitled to recover the expenditure from his
    father because the gift turns out to be less advantageous than he
    at first supposed. It seems to me no less absurd to hold that
    nevertheless there exists between the authority which failed
    properly to inspect and the donee of the property a relationship
    entitling the latter to recover from the authority the expenditure
    which he cannot recover from the donor. Yet that must be the
    logical result of the application of Anns, unless one is to say that
    the necessary relationship of proximity exists, not between the
    authority and all subsequent owners and occupiers, but only
    between the authority and the owners and occupiers who have
    acquired a property for value. With the greatest deference to the
    high authority of the opinions expressed in Anns and in Dutton, I
    cannot see, once it is recognised, as I think that it has to be, that
    the only damage sustained by discovery of the defective condition
    of the structure is pure pecuniary loss, how those decisions can be
    sustained as either an application or a permissible extension of
    existing principle.

    - 35 -

    The question that I have found most difficult is whether,
    having regard to the time which has elapsed and the enormous
    amount of litigation which has been instituted in reliance upon
    Anns, it is right that this House should now depart from it. In his
    speech in Dorset Yacht, Lord Diplock observed, at p. 1064:

    "As any proposition which relates to the duty of controlling
    another man to prevent his doing damage to a third deals
    with a category of civil wrongs of which the English courts
    have hitherto had little experience it would not be
    consistent with the methodology of the development of the
    law by judicial decision that any new proposition should be
    stated in wider terms than are necessary for the
    determination of the present appeal. Public policy may call
    for the immediate recognition of a new sub-category of
    relations which are the source of the duty of this nature
    additional to the sub-category described in the established
    proposition, but further experience of actual cases would be
    needed before the time became ripe for the coalescence of
    sub-categories into a broader category of relations giving
    rise to the duty, such as was effected with respect to the
    duty of care of a manufacturer of products in Donoghue v.
    Stevenson
    [1932] AC 562. Nevertheless, any new sub-
    category will form part of the English law of civil wrongs
    and must be consistent with its general principles."

    For the reasons which I have endeavoured to express I do not
    think that Anns can be regarded as consistent with those general
    principles. Nor do I think that it can properly be left to stand as
    a peculiar doctrine applicable simply to defective buildings, for I
    do not think that its logical consequences can be contained within
    so confined a compass. It may be said that to hold local
    authorities liable in damages for failure effectively to perform
    their regulatory functions serves a useful social purpose by
    providing what is, in effect, an insurance fund from which those
    who are unfortunate enough to have acquired defective premises
    can recover part at least of the expense to which they have been
    put or the loss of value which they have sustained. One cannot
    but have sympathy with such a view although I am not sure that I
    see why the burden should fall on the community at large rather
    than be left to be covered by private insurance. But, in any
    event, like my noble and learned friends, I think that the
    achievement of beneficial social purposes by the creation of
    entirely new liabilities is a matter which properly falls within the
    province of the legislature and within that province alone. At the
    date when Anns was decided the Defective Premises Act 1972,
    enacted after a most careful consideration by the Law
    Commission, had shown clearly the limits within which Parliament
    had thought it right to superimpose additional liabilities upon those
    previously existing at common law and it is one of the curious
    features of the case that no mention even of the existence of this
    important measure, let alone of its provisions - and in particular
    the provision regarding the accrual of the cause of action -
    appears in any of the speeches or in the summary in the Law
    Reports of the argument of counsel.

    There may be very sound social and political reasons for
    imposing upon local authorities the burden of acting, in effect, as

    - 36 -

    insurers that buildings erected in their areas have been properly
    constructed in accordance with the relevant building regulations.
    Statute may so provide. It has not done so and I do not, for my
    part, think that it is right for the courts not simply to expand
    existing principles but to create at large new principles in order to
    fulfil a social need in an area of consumer protection which has
    already been perceived by the legislature but for which,
    presumably advisedly, it has not thought it necessary to provide. I
    would accordingly allow the appeal. It is unnecessary in these
    circumstances to determine the interesting question of whether, in
    fact, the appellants in the instant case, who took the only course
    practically open to them, could be held responsible in law for the
    negligence of the ex facie competent experts whom they consulted.

    LORD JAUNCEY OF TULLICHETTLE

    My Lords,

    I have had the advantage of reading in draft the speech of
    my noble and learned friends, Lord Keith of Kinkel and Lord
    Bridge of Harwich. They have dealt so fully with all the
    important matters which arise in this appeal that I doubt whether
    anything which I say can make a useful contribution to the
    decision. However, in view of the importance of the course which
    they propose, I feel that I must briefly state my reasons for
    agreeing to that course.

    In Governors of the Peabody Donation Fund v. Sir Lindsay
    Parkinson & Co. Ltd.
    [1985] AC 210 Lord Keith pointed out that
    in each case of alleged negligence the true question was whether
    the particular defendant owed to the particular plaintiff a duty of
    care having the scope intended for and whether he was in breach
    of that duty. A relationship of proximity in the sense used by
    Lord Atkin in Donoghue v. Stevenson [1932] AC 562 must exist
    before any duty of care can arise, but the scope of the duty must
    depend upon all the circumstances of the case. In this appeal the
    appellant defendants have accepted that there was a common law
    duty of care incumbent upon them in relation to the passing of
    the plans and we are therefore only concerned with the scope of
    that duty. Like my noble and learned friend, Lord Keith, I prefer,
    in the absence of argument, to express no view as to whether the
    defendants in truth did owe such a duty.

    The issue is whether the scope of the defendants' duty
    extended to the avoidance of economic loss resulting from a
    defect in or damage to the very property for whose safety they
    bore some responsibility. The courts below, relying on Anns v.
    Merton London Borough Council
    [1978] AC 728, held that it did.
    In the 40 years after Donoghue v. Stevenson it was accepted that
    the principles enunciated by Lord Atkin were limited to cases
    where there was physical damage to person or to property other
    than the property which gave rise to the damage and where there
    was no reasonable opportunity of discovering the defect which
    ultimately caused the damage (Grant v. Australian Knitting Mills
    Ltd. [1936] AC 85, Farr v. Butters Brothers & Co. [1932] 2 K.B.
    606). Actual damage had to occur before tortious liability for

    - 37 -

    negligence arose, mere apprehension of such damage giving rise to
    no liability (Overseas Tankship (U.K.) Ltd. v. Morts Dock and
    Engineering Co. Ltd. (The Wagon Mound)
    [1961] AC 388, per
    Viscount Simonds, at p. 425). Furthermore, pure economic loss
    unaccompanied by physical injury to person or property was not
    recoverable unless there was between the parties such a special
    relationship as existed in Hedley Byrne & Co. Ltd. v. Heller &
    Partners Ltd.
    [1964] AC 465. This is quite logical because in
    most cases where damage or a defect which solely affects the
    article in question is discovered before it causes other damage the
    owner is presented with two realistic alternatives: either he
    repairs it or he discards it as useless. In either event his loss is
    purely economic being the cost of repair or replacement.

    However, in Dutton v. Bognor Regis Urban District Council
    [1972] 1 Q.B. 373, the Court of Appeal purported to apply the
    principle of Donoghue v. Stevenson to a case in which there was
    no damage to person or property other than to the property with
    which the duty of care was concerned. A local authority was held
    liable in negligence to the second owner of a house for failing to
    take reasonable care to see that the foundations thereof were
    constructed in accordance with building byelaws. Serious defects
    occurred in the house and the plaintiff recovered the estimated
    cost of repair together with a sum representing the diminished
    value of the house as repaired. Lord Denning M.R. rejected a
    submission that the damage was purely economic saying, at p. 396:

    "The damage done here was not solely economic loss. It
    was physical damage to the house. If Mr. Tapp's submission
    [for the council] 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 repair."

    In rejecting Mr. Tapp's argument, Lord Denning appears to have
    impliedly accepted that a claim for pure economic loss would not
    have been available to the plaintiff. However, his conclusion that
    the cost of repairing a defect which had become patent in the
    building or article in question was recoverable, albeit no damage
    to the person or other property had resulted, extended the scope
    of the Donoghue v. Stevenson duty in two respects. It extended
    the scope in the first place to cover damage to the article itself
    and in the second place to remedying a defect which had become
    patent. Such an extension, if universally applied, would mean that
    the owner of a chattel which developed a defect could recover
    from the negligent manufacturer the cost of repair or replacement
    at least if continued use of the chattel in its defective state was
    likely to give rise to injury - a situation very different from those
    in which the principle of Donoghue v. Stevenson had previously
    been held to apply.

    - 38 -

    Anns v. Merton London Borough Council [1978] AC 728
    came to this House on two preliminary questions of law, namely,
    (1) whether a local authority was under any duty of care towards
    owners or occupiers of houses in relation to inspection during the
    building process and (2), if so, what period of limitation applied to
    any such claims by owners or occupiers. The first question was by
    far the more important. In order to answer the second question it
    was necessary to determine when the cause of action arose but, as
    Lord Wilberforce pointed out, at p. 751E, no question arose
    directly at that stage as to the damages which the plaintiff could
    recover. However, he considered that it was nevertheless
    necessary to give some general consideration to the matter in the
    context of the limitation question (p. 759F). It follows that his
    observations as to damages, while no doubt of considerable
    assistance to the parties, were peripheral to the two main
    questions. Lord Wilberforce then went on, at pp. 759-760, to refer
    to the sort of damages which might be recovered:

    "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. 546."

    Lord Wilberforce then posed the question, "When does the cause of
    action arise?" and gave the answer, "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." He went
    on to hold that Dutton v. Bognor Regis Urban District Council
    had, in the result, been rightly decided.

    My Lords, Lord Wilberforce justified inclusion of damages
    for damage to the house itself as following from normal principle,
    by which I understand him to be referring to that which was
    propounded in Donoghue v. Stevenson [1932] AC 562 and applied

    - 39 -

    in Dorset Yacht Co. Ltd. v. Home Office [1970] AC 1004. Two
    matters emerge clearly from Lord Atkin's speech in Donoghue v.
    Stevenson,
    namely, (1) that damage to the offending article was
    not within the scope of the duty and (2) that the duty only
    extended to articles which were likely to be used before a
    reasonable opportunity of inspection had occurred. This second
    matter was again emphasised by Lord Wright in Grant v.
    Australian Knitting Mills
    [1936] AC 85, 105. Application of the
    principle enunciated by Lord Atkin in Donoghue v. Stevenson would
    therefore appear to negative rather than support the recovery of
    damages for damage to the house itself detected before the
    damage had caused resultant injury to persons or other property.
    Dorset Yacht takes the matter no further and among British cases
    only in Dutton can support be found for such an application of the
    principle. Lord Wilberforce derived support for his conclusion from
    two Commonwealth cases. In Rivtow Marine Ltd. v. Washington
    Iron Works
    (1973) 40 D.L.R. (3d) 530, the Supreme Court of
    Canada by a majority of seven to two rejected a claim against
    manufacturers for the cost of repairing a dangerous defect in a
    crane upon the ground that the manufacturer of a potentially
    dangerous article was not liable in tort for damage arising in the
    article itself or for economic loss arising from the defect in the
    article. Laskin J., however, in a dissenting judgment, after
    considering the liability of the manufacturers for injury to
    consumers or users of their products resulting from negligence
    stated, at p. 552:

    "This rationale embraces, in my opinion, threatened physical
    harm from a negligently-designed and manufactured product
    resulting in economic loss. I need not decide whether it
    extends to claims for economic loss where there is no
    threat of physical harm or to claims for damage, without
    more, to the defective product.

    "It is foreseeable injury to person or to property
    which supports recovery for economic loss suffered by a
    consumer or user who is fortunate enough to avert such
    injury. If recovery for economic loss is allowed when such
    injury is suffered, I see no reason to deny it when the
    threatened injury is forestalled."

    In Bowen v. Paramount Builders (Hamilton) Ltd. [1977] 1 N.Z.L.R.
    394, the New Zealand Court of Appeal held that where a latent
    defect created by a builder's negligence caused damage to the
    structure an action of damages would lie on the ground of it being
    physical damage. Richmond P., after asking the question whether
    damage to the house itself gave rise to a cause of action, applied
    the principle of Donoghue v. Stevenson to a builder erecting a
    house as follows, at p. 410:

    "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."

    - 40 -

    In support of this proposition he relied on the view of Lord
    Denning M.R. in Dutton v. Bognor Regis Urban District Council
    [1972] 1 Q.B. 373 and upon the American case of Quackenbush v.
    Ford Motor Co.,
    167 App.Div. 433; 153 N.Y.S. 131 - a case whose
    authority must now be substantially destroyed by the decision of
    the Supreme Court in East River Steamship Corporation v.
    Transamerica Delaval Inc.
    (1986) 106 S.Ct. 2295, to the effect that
    no liability in negligence attached to a manufacturer whose
    product malfunctioned injuring only the product itself and causing
    pure economic loss. This decision of the Supreme Court is in
    complete accord with the decision of the majority of the Supreme
    Court of Canada in Rivtow Marine Ltd. v. Washington Iron Works.
    If Quackenbush v. Ford Motor Co. is no longer good law the only
    remaining support for Richmond. P.'s proposition is Dutton.

    In D. & F. Estates Ltd. v. Church Commissioners for
    England
    [1989] AC 177 my noble and learned friends, Lord Bridge
    of Harwich and Lord Oliver of Aylmerton were only able to
    reconcile the decision in Anns v. Merton London Borough Council
    [1978] AC 728 with the principle of Donoghue v. Stevenson upon
    the basis that in a complex structure the constituent parts can be
    treated as separate items of property distinct from the part which
    has given rise to the damage. Lord Bridge after stating that when
    the hidden defect in a chattel is discovered before it causes
    external injury or damage there is no room for the application of
    the Donoghue v. Stevenson principle, said, at p. 206:

    "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."

    Lord Oliver, at p. 211B, said that Anns had 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. He later said, at p. 212:

    "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

    - 41 -

    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."

    My Lords I agree with the views of my noble and learned
    friend, Lord Bridge of Harwich, in this appeal that to apply the
    complex structure theory to a house so that each part of the
    entire structure is treated as a separate piece of property is quite
    unrealistic. A builder who builds a house from foundations
    upwards is creating a single integrated unit of which the individual
    components are interdependent. To treat the foundations as a
    piece of property separate from the walls or the floors is a wholly
    artificial exercise. If the foundations are inadequate the whole
    house is affected. Furthermore, if the complex structure theory is
    tenable there is no reason in principle why it should not also be
    applied to chattels consisting of integrated parts such as a ship or
    a piece of machinery. The consequences of such an application
    would be far reaching. It seems to me that the only context for
    the complex structure theory in the case of a building would be
    where one integral component of the structure was built by a
    separate contractor and where a defect in such a component had
    caused damage to other parts of the structure, e.g. a steel frame
    erected by a specialist contractor which failed to give adequate
    support to floors or walls. Defects in such ancillary equipment as
    central heating boilers or electrical installations would be subject
    to the normal Donoghue v. Stevenson principle if such defects gave
    rise to damage to other parts of the building.

    My Lords if, as I believe, the decision in Anns cannot be
    reconciled with the principle of Donoghue v. Stevenson upon the
    basis of the complex structure theory, is there any other
    established principle upon which it could be justified? When Lord
    Wilberforce said that the the damages recoverable might include
    those for damage to the house itself, it is clear that he was
    referring to damage separate from but caused by the defective
    foundations. However, the measure of such damages would be
    limited to what was necessary to remove the danger to the health
    or safety of the occupants, which might well include the cost of
    repairing the initial defect but might equally well be less than
    that required to repair all the damage. Furthermore, the cause of
    action would only arise when there was present or imminent
    danger to the occupants. Thus the two prerequisites to an action
    based on Anns were (1) the existence of material physical damage
    resulting from the original defect and (2) the presence or
    imminence of danger associated with that damage. These
    prerequisites give rise to a number of difficulties. In the first
    place, if the basis of the duty is that persons should not be placed
    in a position of danger it is difficult to draw a logical distinction
    between danger which manifests itself because of physical damage
    and danger which is discovered fortuitously, for example, by a
    survey or inspection. Why, it might be asked, should the
    houseowner in the latter case have no right of action if he takes
    steps to remove the danger before physical damage has occurred
    but have such a right if he waits until damage has occurred when
    remedial costs may very well be much higher? In the second
    place, the concept of imminent danger gives rise to considerable
    practical difficulties. Is a danger imminent when it is bound to
    occur, albeit not for some time, or is it imminent only if it is
    likely to occur in the immediate future? Different persons will

    - 42 -

    have different views as to what constitutes imminence and
    plaintiffs will be in doubt as to when their causes of action
    accrue. If the house collapses without any warning and injures
    nobody any danger inherent in its construction has been removed.
    It would be a very strange result that the owner should have no
    remedy in such an event but should have a remedy if the danger
    had manifested itself before collapse.

    My Lords, as my noble and learned friend, Lord Keith of
    Kinkel, has pointed out, Anns has given rise to considerable
    litigation and has long been regarded as an unsatisfactory decision.
    It is clear, particularly from the careful analysis to which it was
    subjected by Lord Bridge of Harwich and Lord Oliver of Aylmerton
    in D. & F. Estates Ltd. v. Church Commissioners for England that
    it was not based on any recognized principle. It is further
    apparent that it conflicts with established principles in a number
    of respects to which I have already referred. If it were to stand
    as good law there is no logical reason why it should not extend to
    defective chattels thereby opening the door to a mass of product
    liability claims which the law has not previously entertained. I
    therefore agree with my noble and learned friend, Lord Keith of
    Kinkel, that Anns was wrongly decided and should be departed
    from to the extent which he proposes.

    Parliament imposed a liability on builders by the Defective
    Premises Act 1972 - a liability which falls far short of that which
    would be imposed upon them by Anns. There can therefore be no
    policy reason for imposing a higher common law duty on builders,
    from which it follows that there is equally no policy reason for
    imposing such a high duty on local authorities. Parliament is far
    better equipped than the courts to take policy decisions in the
    field of consumer protection.

    I would allow the appeal.

    - 43 -


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