Linklaters Business Services (Formerly Hackwood Services Company) v Sir Robert McaLpine Ltd

The Fifth Party, an insulation sub-sub-contractor, seeks to strike out contribution proceedings brought against it by the Third and Fourth Parties on the basis that it, the Fifth Party, owed to the eventual lessees of premises a duty of care in tort in relation to insulation to the chilled water pipework and associated fittings which is said to have been carelessly installed so that the pipework and fittings became corroded. The application raises interesting issues as to whether a duty of care can be owed in the circumstances, if so what is the scope of that duty and as to the impact of the House of Lords decision in Murphy v Brentwood District Council [1991] 1 AC 398. The question of “complex structures” has featured in the argument.

I have taken the facts from the pleadings but I am not making final findings of fact for the purpose of the litigation overall.

The Claimant, which is a company associated with the well-known solicitors Linklaters LLP, is and has since September 1996 been the lessee and occupier of professional premises at 1 Silk Street, London EC2 (“the premises”). The developer was DS Property Developments Ltd which employed the First Defendant, Sir Robert McAlpine Ltd (“the Main Contractor”) pursuant to a building contract under seal dated 12 August 1996. Other Works involve the stripping back of the then existing buildings to the frame and foundations, extensions, re-cladding and refitting work including the installation of new mechanical and electrical services. The Works included the provision of an air conditioning system which was distributed through the building, vertically, by means of insulated pipework. By an agreement executed under seal dated 13 November 1995 between Linklaters, the Main Contractor and the Second Defendant, Sir Robert McAlpine (Holdings) Ltd (“Holdings”), the Main Contractor warranted to Linklaters the due performance of its obligations under the building contract and Holdings guaranteed to Linklaters the due performance of the Main Contractor’s obligations.

In about October 1995, the Main Contractor employed How Engineering Services Ltd (“HES”), the Third Party, a specialist mechanical and electrical engineering subcontractor, to carry out the mechanical and electrical engineering services work for the project. The sub contract is said to have contained a number of warranties and indemnities provided by HES. The Third Party provided a further Warranty guaranteed by the Fourth Party (“HGL”) to Linklaters.

It is asserted by HES and Southern that there was a contract entered into between HES and Southern Insulation (Medway) Ltd (“Southern”) in November 1995 pursuant to which Southern agreed to supply and install thermal insulation for the relevant pipework.

Practical Completion of the Works was certified on 20 September 1996. As part of its fit out works, Linklaters assumed the responsibility for providing horizontal pipework on each floor and connecting it to the vertical air conditioning pipework installed by the Main Contractor.

The chilled water pipework provided vertically by the Main Contractor and by the Third Party was made of steel; because it was to be maintained at a lower temperature than the surrounding atmosphere, it was important that steps were taken to ensure that water vapour in the air would not condense on to the steel pipework and thus cause rust or corrosion of the steel. The steel was to be thoroughly coated with an anti-corrosion paint and then covered with insulation comprised of prefabricated moulded lengths stuck to the pipework and with the joints in the insulation sealed; a foil-faced laminate was then to cover the insulation with the joints sealed appropriately. Particular arrangements had to be provided at the points where the vertical pipework was supported by brackets or other supports fixed to the structure of the building.

It is asserted by Linklaters in their proceedings issued in October 2009 against the Main Contractor and Holdings that in about July 2006 a leak was identified in a vertical chilled water pipe. Following a survey of the pipework in late July 2006, it is pleaded by Linklaters that, following the removal of the pipework, condensation was found running down the insulation, said to be consistent with or the result of ineffective thermal insulation and vapour seal. Extensive rust or corrosion was said to be found. Linklaters’ pleaded case against the Main Contractor and Holdings is that the Main Contractor failed to apply the thermal insulation and vapour barrier for the chilled water pipework properly or otherwise in accordance with the building contract. In addition to allegations about the pipework, complaint is made about the installation of various “buffer vessels”. In consequence of the breaches alleged against the Main Contractor, Linklaters say that they have removed and replaced the vertical pipework within the chilled water system. The total claim excluding interest is for some £3.5 million.

The Main Contractor and Holdings by Part 20 proceedings seek indemnities or contributions from HES and HGL on the basis that, if they are liable to Linklaters, then HES and HGL are liable on various different contractual bases but on the essential factual basis that HES failed to provide an adequate vapour barrier or insulation.

HES and HGL assert against Southern that they are entitled to a contribution on the basis that:

“12.

It was or should have been foreseeable to [Southern] that if the Southern Contract works were not properly performed then damage to [Linklaters'] property (including the chiller pipework itself) was likely to ensue.

13.

Accordingly, [Southern] owed Linklaters a duty of care at common law to exercise reasonable skill and care in and about the performance of the Southern Contract works. This duty included a requirement that [Southern]:

(a)

select and supply goods and materials for the Southern Contract works which it could reasonably believe to be of good quality and reasonably fit for the purpose for which they were to be used;

(b)

exercise the level of care reasonably to be expected of a competent specialist contractor in and about the installation of the insulation.

14.

If, which is denied, [HES and HGL] are liable under the [Civil Liability (Contribution) Act 1978] to provide an indemnity and/or contribution to [the Main Contractor and Holdings] in respect of [their] liability to [Linklaters], then:

(a)

The damage suffered by [Linklaters] in respect of which such liability on the part of [HES and HGL] under the Act will have arisen was caused by negligence on the part of [Southern] in such of the respects as:

(i)

are alleged by [the Main Contractor and Holdings] against [HES and HGL]...and

(ii)

shall have been established by [the Main Contractor and Holdings] as against [HES and HGL] at trial;

(b)

[Southern]:

(i)

would be if sued also be liable to [Linklaters] in respect of the same damage; and

(ii)

would be and is liable to provide an indemnity or contribution to [HES and HGL] (in respect of damages, interest and costs) pursuant to the Act in respect of any like liability on their part to [the Main Contractor and Holdings].”

Southern has issued an application against HES and HGL for summary judgement on the grounds that HES and HGL have no reasonable prospect of success as against Southern, alternatively for the striking out of HES’ and HGL's claim against it on the basis that it discloses no reasonable grounds for bringing the claim. The essential argument relied upon by Southern relates to whether or not a duty of care arises in relation to careless workmanship on its part (if any) in circumstances that the pipework, which the insulation was covering, was subject to corrosion and rusting.It is asserted that as the loss said to have been suffered by Linklaters was purely economic loss no duty of care exists or extends to cover such loss.

Southern considers that its arguments are so strong and readily determinable at this stage that it would be appropriate and sensible for the issues of principle relating to whether or not any effective duty of care was owed by it to Linklaters to be dealt with on a summary application. Although it initially argued that Linklaters did not have any effective proprietorial link with the premises in question, it was accepted by its Counsel in argument that there was at least a triable issue on that aspect of the matter and that was not pursued in the oral argument before the Court.

HES and HGL argue against Southern's position. They say that the authorities clearly establish a duty of care in a case such as this when, they say, there was damage and it was not to work or materials or elements of the building actually provided by Southern. Corrosion or rusting is, they argue, physical damage and, in the same way as damage caused to a building by fire or flooding caused by a negligently installed boiler or water system, this will give rise to an effective cause of action in tort.

I proceed on the basis of the practice correctly summarised by Mr Justice Lewison in JD Wetherspoon PLC v Van Den Berg & Co Ltd and others [2007] EWHC 1044 (Ch):

“Both the application to strike out and the application for summary judgment are summary applications. The application for summary judgment is made by defendants against a claimant, which is less usual than an application by a claimant for judgment against a defendant. The authorities deal mainly with applications by claimants. The correct approach on applications by defendants is, in my judgment, as follows:

i)

The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 2 All ER 91;

ii)

A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel[2003] EWCA Civ 472 at [8]

iii)

In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman

iv)

This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]

v)

However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5)[2001] EWCA Civ 550;

vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;

vii)

The court should be especially cautious of striking out a claim in an area of developing jurisprudence, because in such areas decisions on novel points of law should be decided on real rather than assumed facts.”

The law has developed over the years in the areas with which these proceedings are concerned. The cases of Dutton v Bognor Regis District Council [1972] 1 QB 373, Anns v London Borough of Merton [1978] AC 278 andJunior Books Ltd v Veitchi & Co Ltd (1982) BLR 66 sought to establish extensive and wide ranging duties of care in relation to the design, construction and inspection of buildings; during the 1970s and 1980s duties of care were found to be owed by builders, sub-contractors, designers, local authority building inspectors and the like to owners and occupiers of the buildings which had been designed, built, supervised or inspected by these various types of persons.

However, that substantially changed through several House of Lords decisions, particularly in the seven judge decision of Murphy v Brentwood District Council [1991] 1 AC 398. That case was concerned with a claim for negligence brought by the owner of a house who had bought it from the builders. The raft foundation was negligently designed so that differential settlement occurred leading to cracking and damage to the walls of the house. The owner claimed in effect for the capital diminution of the property together with costs associated with selling that house and purchasing a new one. The first instance judge held that the local authority was in breach of a duty of care owed by it to the owner and this was upheld by the Court of Appeal. They unanimously overturned the decision in the House of Lords in Anns v London Borough of Merton and the Dutton case. It is perhaps useful to consider the positions adopted by the different judges. First was Lord Mackay who in a short opinion dealt only with the position of the local authority, finding that no private law duty of care to avoid damage to property rested upon local authorities in relation to their function of supervising compliance with the Building Regulations.

Next was Lord Keith, with whom Lords Bridge, Oliver, Ackner and Brandon expressly agreed. He said:

“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.” (page 462F)

“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.” (page 466H)

“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 loss had been sustained through reliance on negligent
mis-statements, as in Hedley Byrne.” (page 468 D-E)

“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.” (Pages 468H- 469C)

“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 concernedwith 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.” (Page 470C-G)

“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 aprinciple 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.” (Pages 470G-471C)

Lord Bridge made some important contributions:

“Dangerous 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.” (page 475A-G)

“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.”

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 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 Donoghuev  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 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.” (Pages 477E-479B)

“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.” (Page 480E-G)

Lords Brandon and Ackner agreed with Lord Keith but the latter also agreed with Lords Bridge, Oliver and Jauncey. Lord Oliver accepted that the loss in the Anns case was pecuniary or economic loss and addressed the complex structure theory:

“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 thatthe 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. (Page 484D-G)

“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… (Page 485-486B)

“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 177and 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.”(Page 489A-C)

Lord Jauncey identified the issue as “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” (Page 492F) and went on to discuss the complex structure theory at Page 497A:

“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.”

Counsel also attached importance to the judgements in the Court of Appeal in Bellefield Computer Services Ltd and others v E Turner & Sons Ltd [2000] All ER 84. This was an appeal from a ruling on preliminary issues of law on the basis of assumed facts. The case related to a fire which went through a building which had been constructed by the defendants for developers as a single unit dairy but was then sold to the claimant. The unit was partly subdivided by a wall which it was assumed had not been built high enough to provide adequate protection against the spread of fire from one area to another. The fire damaged not only the area where it started but also the areas to which it spread; there was also damaged to machinery, plant, laboratory and office equipment and materials as well as to stock. At first instance, it was held that the defendant owed a duty of care to the claimant to safeguard it against damage to property other than to the building itself. The Court of Appeal upheld that decision. Schiemann LJ considered the Murphy case:

Tuckey LJ said:

“I agree that at first sight it is anomalous that in this case the builder is liable in tort for physical damage to the property but not to the property which he contracted to build. It is also perhaps anomalous to describe the damage flowing from the latter as pure pecuniary or economic loss when it is the fire which has caused the damage in both cases. To explain the policy reason behind the first anomaly and to get away from the second anomaly I think that Lord Brandon's dissenting (but subsequently much approved) speech in Junior Books v Veitchi [1983] AC 520 is helpful. In that case the owner of a factory sought to make specialist sub-contractors liable in tort for the defects in the factory floor which they had laid. Lord Brandon held that the sub-contractors had no liability because the scope of their duty was limited by two considerations. Firstly, following Donoghue v Stevenson and the numerous cases in which the principle in that case had been applied the duty was to avoid damaging persons or their property "other than to the very piece of property from the defective condition of which" the danger arose. Secondly the effect of accepting that the scope of the duty was wide

" would be in substance to create as between two persons who are not in any contractual relationship with each other, obligations of one of those persons to the other which are only really appropriate as between persons who do have such a relationship between them..."”

Wall J, the third judge, also considered the impact of theMurphy decision:

For the purposes of this application, I have been asked to and do assume that the facts pleaded by Linklaters and by HSE and HGL are correct. The sole issue therefore is whether or not a duty of care was owed by Southern to Linklaters in respect of what is said to have happened. What is said to have happened is that, by reason of careless work in and about providing the insulation for the steel pipework, water and air has been permitted to penetrate the insulated pipework with the result that the steel has rusted and corroded to such an extent that substantial remedial and replacement work was required. I must and do assume at this stage that corrosion and rusting is to be classified as physical damage to the steel pipework. The reason that I make this assumption is that there is no evidence or assertion currently before the Court that there was anything other than what is pleaded by Linklaters as being "serious rust and/or corrosion" at 27 of 51 locations inspected and something less or other than "serious" rust and / or corrosion at 18 locations (Paragraph 25 of the Particulars of Claim). It is at least conceivable that, and the Court cannot determine at this stage without detailed, probably expert, evidence whether, any rust or corrosion has or has not got to the stage that the pipework can be classified as damaged. On the basis that most physical things erode, corrode or otherwise deteriorate, it may well be that damage to steel objects for tortious purposes does not become damage until it progresses beyond the stage of ordinary or natural deterioration.

The debate on this application primarily revolvedon analysis around the issue as to whether one must classify the insulated steel pipework as one "thing" or, in the context that the pipework was part of an installation in an overall building, whether it is to be considered simply as an indivisible part of the whole building. As in the Bellefield case, the claimant owner of the building was not owed by the builder a duty of care in respect of damage to the building. There is substantial authority, binding on this court, that a claimant cannot recover for the cost or loss of the negligently manufactured, designed or constructed "thing" itself. So, the purchaser of a ginger beer bottle which contains a snail may recover for personal injuries caused if she drinks the ginger beer but not for the cost of the bottle.

Considering cases such as Murphy, D&F Estates and Bellefield, they were primarily concerned with whether the overall builder of the whole building owes a duty of care to owners or occupiers of that building with whom it has not been in contract. It is well established law in such a case that the builder's duty of care, at least generally if not invariably, does not extend to damage to the building itself. Thus, any duty of care owed by a builder who carelessly constructs foundations which consequently leads to the building settling and cracking, does not extend to the damage to the building, let alone the foundations on which it is resting. If the building collapsed injuring a person or damaging his or her car or adjacent building, the builder's duty of care would extend to such person, such injury and such damage. It could thus be said that the "complex structure theory", to the extent that it has survived at all, does not operate to extend any duty of care by the builder to the owner or occupier, at least with regard to damage to the building itself.

These cases of great, and indeed binding, authority do not specifically address the extent of any duty of care owed by a sub-contractor or supplier who provides an element of or within the building being constructed or developed, save that it is clear that the duty of care does not extend to cover the cost of replacement or repair, or the loss, of the element itself. It is in practice inconceivable now that the Junior Books v Veitchi set of circumstances would give rise to an effective cause of action in negligence for the cost of the replacement or repair of the carelessly designed or constructed floor provided by the hapless sub-contractor.What has not been explored and examined in any great detail is the extent of the duty of care owed by those in the position of sub-contractors, or as in this case sub-sub-contractors, and suppliers whose carelessness in and about providing the work, materials, services or equipment which are incorporated into a building or structure causes consequential damage to other elements of the building. The scope of this duty and where the dividing lines are remain to be explored jurisprudentially and in practice.

There are, however, some broad indications as to what may or may not be covered by any duty of care owed by these suppliers of work, services, materials or equipment down the line from the main contractor. Lord Keith in Murphy said that it was consistent with principle (Page 470F) that the negligent provider of a defective turbine incorporated in a ship which caused the loss of the ship would be liable for that loss. He said that in the context that the same view could not be taken of a building all of which "had been erected and equipped by the same contractor." Lord Jauncey accepted in the same case (Page 497C) specifically that defects "in ancillary equipment such 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". He prefaced that remark with support for a limited application of the "complex structure theory in the case of a building 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 the floors or walls."One can therefore properly proceed upon the basis that there is a real probability that the courts would adopt these approaches enunciated specifically by Lords Keith and Jauncey.

The problem arises as to where one draws the line in fact between what I might call consequential damage (that is, physical damage to other construction elements caused by the carelessness in providing one element) and damage to the “thing itself”. Another way of considering this problem is to ask in this case: what is the "thing itself” which is damaged? Mr Wilmot Smith QC (Leading Counsel for Southern) highlighted the problem by an example which was the careless manufacturer of car paint which is applied to a particular car sold through distributors to a potential claimant; by reason of the carelessness, rain water penetrates the paint and seriously corrodes the underlying metal. Does the paint manufacturer owe the claimant a duty of care? It could be said that there is a duty of care in relation to the damage to the metal, albeit not to the failure of the paint itself but, if that is correct, the potential tortious liabilities of parties way down the chain are, almost, infinite and could, for instance, cover the careless provider to the paint manufacturer of a chemical which is incorporated in the paint, in which case the duty of care owed by the careless provider to the ultimate claimant could include damage to the paint itself as well as the underlying metal. Thus it could go on almost forever.

Against that series of potential difficulties, one has to ask whether there is any conceptual difference between flood or fire damage caused to other parts of the building by a carelessly designed or installed boiler or air conditioning plant and consequential corrosion damage to underlying steel pipework caused by carelessly installed insulation over and around that pipework. The damage, or at least the damage complained of, is not to the carelessly installed insulation but to that element of the building works (namely the pipework) which it was designed to protect and which was not provided by Southern. I venture to suggest at this stage, although I make no ultimate finding about it, that there is little or no obvious conceptual difference. If that is right, that involves the logical application of the thought processes enunciated by Lords Keith and Jauncey in Murphy. It may well be the case that broad policy considerations, along the "floodgates" line, might have to be applied by the higher courts but it is difficult in logic to see where the dividing line might come. It might well have to be accepted that Southern’s duty of care extended to damage to other parts of the building caused by an escape of water if the escape was caused by corrosion in turn caused by the careless insulation work. One would in logic have to say that the "thing itself" means not only the thing carelessly provided by the sub-sub-contractor but also the thing to which it is attached; whilst that might exclude from a duty of care pipework covered by insulation, one might think it necessary to include within a duty of care, say, negligently installed exterior cladding attached to the building which causes or permits serious physical rain penetration damage to those parts of the building to which it is attached or which it covers. Logic does not obviously support these types of distinction which revolve around merely the type of damage.

I have formed the view that there are too many factual uncertainties at this stage of proceedings to be anywhere near confident enough to decide that this is an appropriate case for summary judgement or for striking out. The bald facts pleaded by Linklaters do not sufficiently explain for the purposes of the current application, at least, whether the "serious" corrosion or rust is in fact damage for the purposes of any tort claim; they do not adequately spell out the basis upon which in fact Linklaters resolved to replace the whole of the pipework system and the extent to which the pipework as a whole was damaged in any tortious sense.

Another material factor in deciding that this is not an appropriate case for summary judgement or for striking out is that this is or certainly could be an area of developing jurisprudence (to use Mr Justice Lewison’s words in the JD Weatherspoon case). I see some force in Southern’s assertion through Counsel that a dividing line may need to be drawn and equal and possibly greater force in the alternative assertion from Mr Turner QC (for HES and HGL) that in logic there is no real difference between the examples given by Lords Keith and Jauncey in Murphy and the judgements in the Bellefield case and insulation carelessly applied onto pipework which is consequentially damaged. I strongly suspect that when this matter comes to trial the facts which are actually found will help inform the decision; as Mr Justice Lewison recommends, decisions on these types of points of law should be decided on real rather than assumed facts.

Overall, I am satisfied that this is not a suitable case for striking out or for summary judgement. Although the points of law raised are extremely interesting, they are ones which might well go either way in an area of the law which is still being developed. I have certainly formed the view that any decision will best be informed on the basis of the actual facts as found at trial. Southern’s application is dismissed.

I have formed the view that this is an appropriate case for permission to appeal on the grounds that it raises interesting and important issues of law upon which the Court of Appeal might well wish to rule. This is an area of the law which is of particular interest in the Technology and Construction Court. That said, I am satisfied that my ruling in itself is correct and proper and not in itself readily impugnable.

The parties are agreed that costs should follow the event and therefore that Southern should pay the costs of and occasioned by its application. They can not agree on the amount but they have agreed that I should deal with this matter in writing. HES and HGL’s costs which included both Junior and Leading Counsel total £13,117.50 whilst, coincidentally, Southern’s costs if they had been successful worth £30,070.50. The only objections made by Southern in written representations are (a) that 23 hours time spent by solicitors working on documents was excessive and should be reduced to a figure based on eight hours and (b) that Junior Counsel’s fees for advising in conference or other advice should be reduced in £2062.50 to £750. In my view, there is little or nothing in these two objections. The solicitors’ 23 hours under the heading “Documents” in the summary Bill includes for considering the application, reviewing correspondence and documents, preparing a witness statement, instructions to Counsel, Brief to Counsel, hearing bundle and costs schedule together with time spent considering the skeleton argument. It is unsurprising that this amount of work took a considerable amount of time. I will however reduce it by £500 to reflect what would have been deducted following a full cost assessment. So far as the second point is concerned, I have no doubt that this application was sufficiently important to require advice from competent Junior Counsel and I notice that Southern themselves obtained free Brief advice from junior and leading Counsel over a period of some three weeks. I therefore make no reduction in the case of this item. It follows that HES and HGL’s costs are summarily assessed at £12,617.50.