Practical Law

A full trial on liability and quantum in a construction dispute is a rare event these days, largely thanks to adjudication, but there has just been such a trial in the TCC. Following some preliminary skirmishes, judgment in Linklaters v McAlpine and others was given on 23 November 2010. Referring to the case as a tale of leaks in Linklaters’ premises makes it sound rather more exciting than it was, but the consequences of water escaping from pipework were no doubt a major problem at the time.

Linklaters v McAlpine

In brief, the case related to corrosion of pipework arising from faulty insulation. As is common in such cases, each party blamed the next one down the chain until the spotlight hit the sub-sub-contractor, Southern Insulation Ltd. (The court had already found that the main contractor and sub-contractor were liable to Linklaters under collateral warranties by reason of their failure to apply proper insulation to the chilled water pipework, leading to condensation that, in turn, penetrated affected vapour barriers; alternatively, it resulted in leakage of chilled water from malfunctioning joints and valves.)

The interesting point here was that the sub-contractor sought contribution from its sub-sub-contractor and so it was necessary for the court to decide whether the sub-sub-contractor owed a duty of care in tort to Linklaters. At this point, the court was speaking obiter, having already found that the sub-sub-contractor was not materially in breach of any duty of care it owed, as it did not take any relevant design decisions.

Economic loss and “complex structure” theory

In order to decide whether the sub-sub-contractor owed a duty of care to Linklaters, it was necessary to consider whether the damage caused by faulty insulation was economic loss. The House of Lords’ judgment in Murphy v Brentwood decided that damage to the “thing” negligently designed or constructed is economic loss and is not recoverable in tort. However, it left open the possibility that in the case of a “complex structure”, such as a building, one element of the structure might be regarded as distinct from another element.

What exactly was the “thing” in this case?

The court decided that the insulated chilled water pipe work was essentially the “thing” for the purposes of tort. It said:

“one would never have chilled water pipe work without insulation because… it would corrode”.

As such, the insulation was a component of the pipe work. Therefore there was no liability in tort. The court said this was a reasonable outcome as Linklaters could (as they did) obtain warranties from key contractors.

Where does this leave the complex structure theory?

In Murphy v Brentwood, the House of Lords gave some other examples of what does and does not amount to the “thing”, indicating the scope of recoverable loss under this approach. For example, recoverable loss could include:

• carelessly installed electrical wiring causing fire damage to a building;
• damage due to an explosion caused by a defective central heating boiler; and
• a steel frame erected by a specialist sub-contractor causing damage by inadequate support to floors or walls.

By contrast, cracking in walls due to defective foundations inserted by the same contractor as for the rest of the building would not cause recoverable loss as the structure is to be regarded as a whole.

Consequently, while this issue clearly has to be decided on a case by case basis, it seems that if you are talking about a component of the damaged article, then it is likely that it will be part of the “thing” negligently designed or constructed. However, where a separate identifiable element of a building is constructed by a specialist (sub-)contractor and damage to other elements of the building occurs due to defective works, the likelihood of the “complex structure” theory applying is substantial.