Of the various areas of law that make up what is known as “construction law”, I think it is fair to say that negligence and whether a certain loss is recoverable is perhaps the most complex and one which, still today, many years after a snail was found in a bottle of ginger beer, gives rise to the most uncertainty.
That uncertainty concerns, amongst other things, the question of whether the damage caused is to “other property” (when the loss is normally recoverable) or to “the thing itself” (when the loss is not normally recoverable, as it constitutes economic loss).
The developing law
The law of negligence developed through the 1970’s, 80’s and early 90’s. While economic loss started off as recoverable (Dutton v Bognor Regis District Council, Anns v London Borough of Merton and Junior Books Ltd v Veitchi & Co Ltd), the tide dramatically turned with the 1991 decision of Murphy v Brentwood District Council. In general terms, recovery of economic loss is now seen as a no-no. However, lawyers, never known to accept no for an answer, have been continually trying to chip away at that principle.
The Complex Structure Theory
One latent crack that the House of Lords in Murphy failed to fill, and still have not resolved, is what has become known as the Complex Structure Theory, particularly insofar as it applies to sub-contractors.
The Complex Structure Theory can probably best be explained by way of the following:
- To be recoverable in negligence, the damage must be to “other property”.
- Where a main contractor is responsible for building the whole building, the building is looked upon as one integral unit. As a result, simply because the defective foundations cause cracking to the building, the damage to the building itself cannot be classed as “other property”, giving rise to a claim against the main contractor in negligence for that loss.
- However, if a sub-contractor installs a particular component (such as the plumbing or wiring system) which is defective and that defective component results in, say, a flood or a fire, there is a question as to whether that loss is recoverable on the basis that the damage was to “other property”. The dividing of the building into individual components, built by individual sub-contractors, is at the very heart of the Complex Structure Theory.
The question as to whether the Complex Structure Theory exists, and provides a road to recovery, has gone unanswered since it was first mooted by Lord Bridge in D & F Estates v Church Commissioners for England, way back in 1988. However, it has come up again for consideration in Linklaters Business Services v Sir Robert McAlpine Ltd.
Linklaters v Sir Robert McAlpine
Linklaters owned a building that it acquired from a developer who had the building built by McAlpine. McAlpine provided Linklaters with a collateral warranty. McAlpine engaged a specialist M&E sub-contractor to carry out the M&E works. The M&E sub-contractor engaged a sub-sub-contractor (Southern) to supply and install the thermal installation to the pipework.
Southern’s thermal installation was allegedly defective, causing the steel pipes installed by the M&E sub-contractor to corrode. There was a leak. The steel pipework had to be replaced. Linklaters claimed £3.5million from McAlpine. McAlpine sought an indemnity/contribution from the M&E sub-contractor who, in turn, sought an indemnity/contribution from Southern, the hapless sub-sub-contractor, claiming that Southern owed Linklaters a duty of care, which it had breached.
Southern was not impressed with this allegation of an alleged duty of care. So confident was it of its defence (that no duty of care existed) that it brought an application for summary judgment/strike out on the basis that the M&E sub-contractor’s claim had no reasonable prospect of success and disclosed no reasonable grounds for bringing the claim. It was, said Southern, pure economic loss and no duty of care existed to enable the M&E sub-contractor to recover that loss. No wonder they call this a complex theory.
Summary judgment application
In reaching his decision, Akenhead J reviewed all of the relevant great and binding authorities. He concluded that none of them answered the question of whether there was a duty of care owed by a sub-contractor who provided one element of what goes to make up the building except to the extent that the duty does not extend to cover the cost of repair or replacement of the defective thing itself. He also recognised that, while not deciding the point, the authorities appeared to indicate that the Complex Structure Theory did exist when it came to sub-contractors.
Akenhead J also recognised that the answer would depend on the facts and where one drew the line; whether one said it was the thing itself that was damaged or whether the damage was consequential (i.e. something else was damaged). He was also aware that when it came to the law of negligence, the higher courts sometimes applied policy considerations to prevent the floodgates from opening.
On the basis that there were “too many factual uncertainties”, Akenhead J was nowhere near confident enough to decide that it was appropriate to give Southern summary judgment or to strike out the claim against it. However, Akenhead J recognised that the point of law was extremely interesting and one that is still being developed. On this basis, he gave permission to appeal.
So, many many years after that little snail gave Mrs Donoghue such an awfully bad stomach, the complexity that practitioners face when they try to advise on a still developing area of law may finally be made a little bit easier. However, real simplicity will not be achieved until the question finally comes before the Supreme Court. I will drink more than a ginger beer to that.
Does Southern owe a duty of care to How Engineering to protect it from financial loss under collateral warranties and guarantees between How Engineering, McAlpine and Linklaters?
This question was considered by Akenhead J last month, when Southern applied to strike out the claim against it. Akenhead J concluded that, on the assumed facts before the court, Southern did owe a collateral duty of care in tort to How Engineering. The court declined to strike out the claim and again gave permission to appeal its decision.
Last week, the Court of Appeal dismissed Southern’s appeal in the Linklaters’ action and adjourned the appeal in the How Engineering action. As a vacation court, only sitting for one week during August, the Court of Appeal said it was being asked to “get a quart into a pint pot”. With the trial of both actions due to start in October, it concluded that it could not hand down a reserved judgment before then. It noted that is was unfortunate that Southern could not walk away “scot-free”, but recognised that it was more important that the trial of both actions was not deferred while these appeals were dealt with.
The Court of Appeal agreed with Akenhead J that the issue of whether Southern owed the alleged duty of care in tort to Linklaters or How Engineering was problematic, and suggested that it was an issue that “may require the attention of the Supreme Court in due course”.
After a four week trial later this year, this is one case that may well be attracting the Supreme Court’s eye.
Does Southern owe a duty of care to How Engineering to protect it from financial loss under collateral warranties and guarantees between How Engineering, McAlpine and Linklaters?
This question was considered by Akenhead J last month, when Southern applied to strike out the claim against it. Akenhead J concluded that, on the assumed facts before the court, Southern did owe a collateral duty of care in tort to How Engineering. The court declined to strike out the claim and again gave permission to appeal its decision.
Last week, the Court of Appeal dismissed Southern’s appeal in the Linklaters’ action and adjourned the appeal in the How Engineering action. As a vacation court, only sitting for one week during August, the Court of Appeal said it was being asked to “get a quart into a pint pot”. With the trial of both actions due to start in October, it concluded that it could not hand down a reserved judgment before then. It noted that is was unfortunate that Southern could not walk away “scot-free”, but recognised that it was more important that the trial of both actions was not deferred while these appeals were dealt with.
The Court of Appeal agreed with Akenhead J that the issue of whether Southern owed the alleged duty of care in tort to Linklaters or How Engineering was problematic, and suggested that it was an issue that “may require the attention of the Supreme Court in due course”.
After a four week trial later this year, this is one case that may well be attracting the Supreme Court’s eye.