Broster & Ors v Galliard Docklands Ltd & Anor

This case has been transferred to the TCC from the Winchester County Court and the first meeting of the parties and the Court has been used by agreement to review whether or not the Claimants’ case can in practice be maintained as a matter of law. In effect, the Second Defendant argues that the case as formulated has no realistic prospect of success whilst the Claimants argue that they have a valid and arguable claim.

This part of the judgement is based on the Claimants’ pleadings and is not intended to make final findings of fact. In 1997 Galliard Docklands Ltd (“Galliard”) employed East London Construction Limited ("ECL") to design and construct a terrace of six houses which became known as Nos. 16 to 21 Old Bellgate Wharf, Westferry Road, London E14. The building contract (“the Contract”) was in the standard JCT Standard Form with Contractor’s Design (1981 edition incorporating amendments). The terrace comprised three-storey townhouses with a common roof. ECL completed these works and Galliard sold the premises to 6 individual purchasers including the second and fifth named Claimants (Nos. 17 and 21). The other Claimants are subsequent purchasers of their respective properties (Nos. 16, 19 and 20). The owner of No 18 does not participate in these proceedings.

All the Claimants were the owners when on 8 January 2005 at 1.45 in the morning the premises were subjected to high winds of 44 knots. As a result of this wind the roof to the terrace lifted to a height of up to one metre before falling back on to the top of the walls of the premises, thereby causing damage to the premises and to each of the properties within it. The cause of the roof lifting is said to have been the failure by ECL to ensure (either by way of design or construction) that the roof joists in respect of each of the premises were strapped to the walls of the same and the installation of the ceiling joists into an open bed joint at No 21. Remedial works to the premises were carried out in spring 2007 and half of the total remedial works costs was borne by the National House Builders Council. The damages claim includes for various professional fees, scaffolding, carpeting, remedial works and alternative accommodation or loss of rent claims.

The Claim was issued by or on behalf of the Claimants on 2 January 2008, which was just under three years after the storm-related damage to the properties. For reasons which have been not wholly explained, the matter has not proceeded with any great expedition until the case was transferred to this Court in February 2011. No Defence has yet been filed and indeed Galliard has played no part in these proceedings, it having been liquidated but then reinstated.

The originally named Claimants included as second and third named Claimants two individuals who in fact acted as agent in acquiring the respective properties for what by amendment are now the second, third and fifth named Claimants. The Claimants apply to have the right names substituted and there is no opposition by ECL to that course of action.

I have set out above the basic facts which are pleaded. The key elements of the remainder of the Particulars of Claim are as follows:

The burden of demonstrating that the Claimants have no realistic prospect or reasonably arguable case is accepted as falling on ECL at this stage. Mr Howarth sought, in summary, to demonstrate that, in so far as this was a claim which relied upon physical damage as a constituent element of tort, there could be no liability because what was damaged was in essence "the thing itself" and authorities demonstrate that in general a party can not sue in tort in relation to damage to a building designed and/or built by a defendant, particularly where there is no contract between the two parties. In so far as the claim is put simply as one for economic loss, there is, he argued simply no cause of action. To the extent that there is reliance on the Latent Damage Act, that only applies where there was an accrued cause of action in tort, in this case as between Galliard and ECL, and that there was no such cause of action before Galliard disposed of the terraced houses in question, there being at that stage no physical damage to the houses.

Mr Kennedy argued that it was premature for the Court to form a view as to the ultimate prospects of success, pending completion of the pleadings and, possibly, the exchange of expert reports. However, in any event, he argued that, broadly for the reasons set out in Paragraphs 19 to 22 of the Particulars of Claim there was a perfectly viable cause of action by way one or other of the three routes set out there.

It will be a helpful to review the law in relation to building damage related negligence, which brings in consideration of the complex structure. This was considered in some detail in a summary judgement application by a Fourth Party in Linklaters Business Services Limited –v- Sir Robert McAlpine [2010] EWHC 1145 (TCC) to have a claim against it dismissed in circumstances in which it was proceeded against in negligence for allegedly negligently applied insulation to steel chiller pipework; it argued that there was no cause of action by the building owner against it because any carelessly applied insulation which caused or permitted corrosion of (or physical damage to) the steel pipework was damage to the "thing itself". The Court reviewed the law in relation to buildings, stating:

“25.

The debate on this application primarily revolved on 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.

26.

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.”

This is, I believe, an unexceptionable summary of the law. The Linklaters case however in that context was concerned with whether a sub- or sub-sub-contractor owed a duty of care to the ultimate owner or occupier. Eventually, at the final trial (reported as [2010] EWHC 2931(TCC), the Court did form the view, based on the facts and the evidence, that the insulation and the steel pipework had to be considered as one thing and, even if there had been causative carelessness in the fixing of the insulation, there would have been no liability because the damage would have been to "the thing itself".

That then takes one on to a consideration of whether or not damage caused by a negligently designed or fixed common roof to the dwellings below that common roof, even in separate ownership, is damage to the “thing itself”. It is important to have regard to what the House of Lords said in Murphy v Brentwood DC [1991] 1 AC 398, in particular the judgement of Lord Bridge, with whom most of the other judges agreed:

“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] A.C. 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.”

I have underlined those dicta which are most apposite.

I draw from this judgement in particular the conclusion that one needs to consider the structure in question as a whole and to avoid any artificiality in practically considering the structure. The issue relating to dwellings in one block was considered by HHJ Humphrey Lloyd QC in Payne and others v John Setchell Ltd [2002] PNLR 7 where the subject matter was a pair of semi-detached houses built on a common reinforced concrete raft foundation and the issue arose as to whether the structural engineer defendant owed a duty of care in tort to the owners. At Paragraph 36, the judge said:

“It was submitted that there was a liability to indemnify on the grounds that the other half of the cottages represented "other property" or work covered by the "complex structure" theory. The two cottages share a common foundation which serves both halves. The building was built as a single entity. In my judgement it would be artificial to regard the other half as "other property". That refers both to property that belongs to another property which is materially separate from the building in question. Hence in Bellefield the claimants were able to recover for damage to contents as they were "other property" but the Court of Appeal regarding dividing the building into parts based on differences in function as "a thoroughly undesirable approach" (see Schliemann L.J. at page 105 and see also Wall J. at page 106-[references are to [2000] BLR 97]). In my judgement it would not be consistent with the policy established by the House of Lords to try to find ways round it. The House of Lords has grappled with the policy considerations on at least four occasions (Anns, D&F, Murphy and DoE v Bates) and although there remain well founded reservations about the consequences of the permitting those who make culpable errors can escape liability to their neighbours (in law) for reasonably foreseeable loss and damage suffered by those who must have been in contemplation as likely to be affected by the errors, that is the law of this country.”

He went on at Paragraph 40 having considered the authorities referred to above:

“In the light of these speeches not only is the "complex structure" exception no longer tenable but it is also clear that in approaching the question of "another part of the property" it is necessary to avoid any artificiality and to be realistic. To treat the part of the foundation slab under No. 1 as if it were separate from that part under No. 2 would be completely unrealistic…”

I see no reason to disagree with the approach adopted by the learned Judge in this context.

The next area of issue is the impact of the Latent Damage Act 1986. Relevant extracts are as follows:

“(1)

Subject to the following provisions of this section, where—

(a)

a cause of action (“the original cause of action”) has accrued to any person in respect of any negligence to which damage to any property in which he has an interest is attributable (in whole or in part), and

(b)

another person acquires an interest in that property after the date on which the original cause of action accrued but before the material facts about the damage have become known to any person who, at the time when he first has knowledge of those facts, has any interest in the property;

a fresh cause of action in respect of that negligence shall accrue to that other person on the date on which he acquires his interest in the property.

(2)

A cause of action accruing to any person by virtue of subsection (1) above—

(a)

shall be treated as if based on breach of a duty of care at common law owed to the person to whom it accrues; and

(b)

shall be treated for the purposes of section 14A of the 1980 Act (special time limit for negligence actions where facts relevant to cause of action are not known at date of accrual) as having accrued on the date on which the original cause of action accrued…

(4)

Subsection (1) above shall not apply in any case where the person acquiring an interest in the damaged property is either—

(a)

a person in whom the original cause of action vests by operation of law; or

(b)

a person in whom the interest in that property vests by virtue of any order made by a court under section 538 of the Companies Act 1985 (vesting of company property in liquidator).

(5)

For the purposes of subsection (1) (b) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who has an interest in the damaged property at the time when those facts become known to him to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.

(6)

For the purposes of this section a person’s knowledge includes knowledge which he might reasonably have been expected to acquire—

(a)

from facts observable or ascertainable by him; or

(b)

from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;

but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable by him only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.”

It is necessary before a fresh cause of action arises in accordance with Section 3(1) that there has been an “original cause of action” in negligence which has accrued to an earlier owner of the property. Thus, there must have been some damage for the purposes of the tort. In the context of negligence relating to buildings or structures, apart from personal injuries, there has to be a duty of care owed, a breach and damage. "Damage" in this context falls into one of two categories although conceivably they may overlap: physical damage and economic loss. Thus, physical damage is self-explanatory and could cover cracking, breakage, flooding, fire and the like. Economic loss could include a capital diminution in the value of the property and the cost of remedial works even when there is no physical damage as such. The language of Section 3 of the 1986 Act points to "damage to property" or “damaged property” as being the key; that language is consistent with there being physical damage. If the legislators had intended that all types of loss which could be recovered and form the basis of a negligence claim, they would have said so: the language in Section (3)(1) would have been something of the nature of "…negligence to which damage or loss relating to any property…" or "… negligence to which damages relating to any property…”. HHJ LLoyd QC took the same view in the Payne case:

“45.

At the heart of this sub-issue is whether Mr or Mrs Wright had a cause of action "in respect of any negligence to which damage to any property… is attributable, i.e. would the claim had been in respect of "damage to any property"?...In my judgment it does not follow that if the cause of action is the economic loss then it is by itself excluded by the ambit of section 3 (1). There may be circumstances in which a duty of care may arise to avoid causing economic loss. However the words of Section 3 (1) (a) refer to "any negligence to which damage to any property… is attributable". The word "negligence" here does not mean breach of a contractual duty to exercise reasonable skill and care (see Jackson & Powell cited above, para. 1-154). Paragraph (b) presupposes that "the material facts about the damage" have not become known. A person who has accepted the design of an architect or engineer and has relied upon it to have building work carried out will not know or will not necessarily know that the design was inadequate and that the property will be of less value than it would have been until there is reason to know the true position. If the design is inadequate the symptoms of its inadequacy will or may not manifest themselves in any material manner for some time.

46.

Nevertheless the question to which the sub-issue is directed turns on a preposition: was there a cause of action in negligence to which damage to any property is attributable or was it in respect of a course of action for negligence to which damage in any property is acceptable? In my judgment it is now clear that where the cause of action is in negligence and relates to damage to property a distinction is made between damages to property-such as that suffered by the subsequent owners in Bellefield which they were able to recover, namely the contents-and damage in the property, because it is defective and thus damage. In my judgement any cause of action in respect of which a claim might have been made by Mr or Mrs Gotobed Wright against the defendant in negligence would have been about damage in the cottages arising from the decision to build them or from the use of the defendant’s design and not damage to them in the sense of damage caused to the building which is now the only damage recoverable in law. The cottages were inherently unsound as a result of the inadequacy of the foundation design (as it is supposed). For reasons given earlier either there is no cause of action for such loss or damage or it is not damage to property which may be recoverable. Accordingly in my judgement the answer to question Sub-issue (e) is: No. Thus the claimants cannot succeed via the Latent Damage Act."

It would be helpful first to consider the extent to which, on the basis of the Claimants’ pleaded case, ECL can be said to have owed a duty of care to the Claimants in relation to the physical damage to their houses caused by the roof of their terraced houses being lifted by wind and dropped back onto the walls as a result of the roof not being strapped down to the walls. In my judgement, there is no realistic prospect of establishing that any such duty of care was applicable. It is clear from the pleadings that the houses, albeit intended for multiple occupation (by six sets of occupiers), were, as almost all terraces are, built as one construction; they were physically linked to and homogenous with each other and they shared, at least, a common roof. The pleadings, unsurprisingly do not spell out the other respects in which the terrace units were interlinked but it would be surprising, for instance, if there was not some interlinking of foundations at least between immediately neighbouring units.

It would be wholly artificial to argue that the segment of the roof over each individual terraced unit was to be considered as separate from the whole roof or indeed that the roof as a whole was to be considered as separate from the walls of the units below. It follows that there is damage "to the thing itself". Put another way, the duty of care does not extend to protect the owners of the property from damage to the roof itself or to the units below caused by the dislodgement of the roof. The House of Lords in the context of negligence has repeatedly warned against an artificial sub-division of a building, no matter how large, into constituent elements and, whether or not the "complex structure" theory still has a material part to play in the law of negligence relating to buildings and structures, it does not extend to a case such as this.

In the case of Bellefield Computer Services Ltd v E Turner & Sons Ltd [2000] BLR 97, the Court of Appeal was concerned with a fire case in which the fire had spread from the storage area within the Claimant’s property and spread to the rest of the premises, partly at least as a result of an inadequate compartment wall having been constructed. The Claimant, who had acquired the premises from the original owners, sued the original builder with whom it had had no contract. It was said that there was no damage for the purposes of the tort because the building was to be considered as indivisible. Schliemann LJ considered that it was necessary to be loyal to the guidance given in the Murphy case, recognising that there might be different considerations in circumstances such as where "a modern shop [was] added to the end of a Georgian residential terrace" (page 105). He went on to say however that:

“However, in the present case the whole of the dairy was built at the same time by the builders, marketed as a unit, bought as a unit to be used as a unit and was used as a unit. I have no doubt that any holding either that (1) the rooms on one side of the wall should be treated for present purposes as constituting a different building from the runs on the other side of the wall, or that (2) the wall should be treated as constituting a different building from the rooms on one side of it, would be a thoroughly undesirable approach to the issues before us."

Of course, there is a distinction between the current case and the Bellefield case because in the current case the terrace units were designed and constructed as one building but marketed as separate units to be used and occupied by separate occupiers. Tuckey LJ adverted to the fact that there could be considered to be an anomaly in the law because the Claimant was able to recover damage to "other property, such as office equipment, general content and stock. However that did not alter his views about the policy involved and after referring to the well-known dissenting judgement of Lord Brandon in Junior Books v Veitchi [1983] AC 520, he said, at Page 106:

“It is these difficulties which I think justify the policy which prevents recovery in tort against the builder in this case the defects in the building which have caused damage to it…”

Mr Justice Wall in that case stated at Page 106:

“…the building was constructed for use as a dairy, was formed of portal frames providing a high single story structure, and was divided internally in certain areas to provide two floors. The fact of "compartmentalisation”, and that different parts of the building were used for different purposes within its overall function as a dairy does not mean, in my judgement, that the structure ceased to be a single building."

Although there are factual differences between the Bellefield case and the current one, I do not consider that they are material, at least in the context of this case. This terrace building comprising six housing units was built as a single structure with a common roof and, at least so far as the units shared common parts such as the roof, it should properly be considered, for the purposes of any cause of action in negligence, a single structure. Conceptually, I do not see that there is any significant difference between a common roof over a number of terraced units (or for instance a block of flats) and a common foundation, such as the reinforced concrete raft in the Payne case; in one case, the building overall suffers physical damage because part of the common foundation fails and in the other the building overall suffers physical damage because all or part of the common roof fails. Mr Kennedy, in his able argument for the Claimants, suggests that one could test his clients’ position by examining the hypothesis that the roof might have been adequately strapped down to the walls in one or five out of six of the dwellings with the consequence that damage to the dwellings over which there was adequate strapping was nonetheless caused by the movement of the roof above those dwellings over which there was no strapping. That then, however, introduces a hypothesis which is immaterial to the pleaded position in this case but in any event it introduces, if his argument was accepted, an even greater artificiality. Such artificiality is contrary to the overwhelming thrust of the various House of Lords’ decisions upon which the law in this area has been based (such as Murphy and D & F in particular). This is a case in which only damage to the building itself is pleaded; for instance, there is no obvious case pleaded that other property, such as furniture, was damaged as a result of the dislodgement of the roof. One can not “shoe-horn” the various exploding boiler type exceptions to the rule about this into the type of circumstances which pertain in this case.

Whilst one can of course have sympathy for owners of premises such as those who find themselves in the type of predicament these Claimants experienced, there are or were some types of protection available. It is clear from the Particulars of Claim that some or all of them had the ten-year protection of NHBC warranties. They could arguably have had, subject to limitation, some protection under the Defective Premises Act 1972. Each could have had a detailed structural survey which at least might have picked up the absence of strapping. Each could have had, and indeed may well have had, insurance against storm damage, into which category the damage to their premises might well have fallen. Given the policy of the law in this area, it is not obviously unjust or unreasonable that the scope of any duty of care is limited.

Turning to the Latent Damage Act, I am of the view that this provides no assistance to the Claimants in this case. There are, essentially, at least two reasons for that. The first is that the only cause of action which might have accrued to or for the benefit of Galliard (the developer and vendor of the terraced units) before each of the Claimants required his, her or their interests in their properties was not one to which any physical damage was attributable. In this case, it is clear from the pleadings that there was no physical damage at that stage; there was only a common defect in the building, namely the fact that the common roof was not strapped down to the walls below. The cost of providing what are usually galvanised metal straps, possibly half a dozen for each unit, would be relatively minimal, both in material and labour terms; given the experience of this Court, I can not see that, even after completion of the works, this would have run to more than a relatively small five figure sum in total for all the units. In the context of total sale prices running to six-figure sums, this would not be significant. It is, however, at least feasible that there might be some very small capital diminution in the value of the completed units as a result of the deficiency. Therefore, at best, the damages recoverable, if at all, would be limited to the capital diminution which realistically would not exceed the remedial work cost.

There would, on the pleaded case, be a cause of action in contract as between Galliard and ECL but the cause of action in tort would, in the light of the recent Court of Appeal decision in Robinson v P E Jones (Contractors) Ltd 2011 EWCA Civ 9, be limited at most to a complaint not of bad workmanship (failing to put in straps specified in the design) but of bad design (failing to specify straps in the design). Both workmanship and design complaints are made by the Claimants in the Amended Particulars of Claim. However, assuming that there is a valid design complaint (that the absence of roof straps is attributable to the careless failure on the part of ECL to specify such straps), the cause of action which Galliard might have against ECL would have been for economic loss, which in reality would be a capital diminution claim which in practice could not exceed the reasonable cost of installing the straps. Thus, the only claim which Galliard might have had was not for physical damage caused by any careless design because no physical damage on any account occurred until some years later. Therefore, the Latent Damage Act does not provide any or any renewed cause of action to the Claimants, be they original or subsequent purchasers, because no material cause of action had accrued to Galliard.

The second reason is that the "fresh cause of action” which accrues to a subsequent purchaser under the Latent Damage Act, is “in respect of that negligence". “That negligence” must relate or equate to the cause of action which had accrued in this case to Galliard and that is a cause of action in which the "damage" is the capital diminution in the units attributable to the absence of roof straps. The cause of action does not cover, relate or equate to the physical damage which might happen in the future if a strong enough wind from the wrong direction could occur so as to dislodge the roof. If the Latent Damage Act applied at all, which in my judgement it does not, then it would be limited to a capital diminution, which is not the loss which is claimed in these proceedings. Additionally, Galliard in reality had no cause of action for capital diminution because there is no pleaded hint or suggestion that Galliard sold any of the units at an under-value to reflect the absence of straps; in that context, the Court of Appeal case of Abbott v Will Gannon & Smith Limited [2005] BLR 195 suggests, obiter, that there would in those circumstances be no economic loss because it could "only do so when it manifested itself in some way which will affect the value of the building, measured either by the cost of repairs order appreciation in market value" (per Tuckey LJ at Paragraph 20). Therefore, on this basis also, the claim as pleaded (on the basis of remedial work costs flowing from the subsequent dislodgement of roof) has no realistic prospect of success.

It follows from the above that, on the basis of the Amended Particulars of Claim, the Claimants have no realistic prospect of success in their claims as put forward. Any cause of action relating to physical damage caused by the dislodgement of the roof was damage caused "to the thing itself", namely the terraced units sharing a common roof. There is no protection or new cause of action available pursuant to the Latent Damage Act.

I will hear the parties on issues of costs and any other matters when this judgement is handed down.