English Court of Appeal Clarifies Building Contractor's Tortious Liability for Pure Economic Loss

English Court of Appeal Clarifies Building Contractor's Tortious Liability for Pure Economic Loss

By: David J. Howell and James Rogers


Fulbright Briefing

J.A. Robinson v P.E. Jones (Contractors) Ltd [2011] EWCA Civ 9


A recent decision of the English Court of Appeal has sought to reconcile existing case law concerning the extent to which a building contractor can be liable in tort for pure economic loss arising from a construction defect. In J.A. Robinson v P.E. Jones the Court of Appeal clarified that while a building contractor can in principle owe concurrent duties in tort and contract, liability in tort for pure economic loss will only arise where, upon an analysis of the parties' dealings, the building contractor can be shown to have assumed such a responsibility.


Background
In 1991, P.E. Jones agreed to build and sell a house to Mr Robinson. Construction was successfully completed and the property transferred to Mr Robinson in 1992. In 2004, the property's chimneys were serviced, and it became clear that their construction was defective and they were unsafe. The chimneys were disconnected, and a further survey revealed that they would have to be replaced at a cost to Mr Robinson of £35,000.
Mr Robinson was unable to bring a claim for breach of contract due to the expiry of the relevant contractual limitation period. He was left to frame his claim as a negligence claim as the time limitation for a claim in tort (if any) had not expired. As no physical injury resulted from the defective chimneys, the Court of Appeal was therefore left to consider whether a contractor such as P.E. Jones assumed responsibility for pure economic loss arising from its construction work. The question therefore arose, did P.E. Jones have a concurrent liability in tort for the pure economic loss suffered by Mr Robinson.


Court of Appeal's decision
Mr Robinson's claim failed at first instance in the English Technology and Construction Court, and in late 2010, his appeal was heard in the Court of Appeal.
After a thorough review of the relevant authorities, and following the House of Lords decision in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, the Court of Appeal held that a builder can owe co-current obligations both in contract and in tort, subject to any restrictions agreed under the terms of the contract.

A builder will normally be under a tortious duty to take reasonable care to prevent personal injury to, or damage to other property of, the client or a subsequent owner or user of the product or property. That principle will be familiar to students of English tort law as arising from the famous "snail in a bottle" case, Donoghue v Stevenson [1932] UKHL 100, where the court recognised that a manufacturer of products "with knowledge that the absence of reasonable care in the preparation or putting up of products will result in an injury to the consumer's life or property, owes a duty to the consumer to take that reasonable care."

A separate basis for tortious liability for pure economic loss may arise in the circumstances described in the equally well known case of Hedley Byrne v Heller [1964] AC 465. That decision established the principle that a professional advisor can assume responsibility for pure economic loss if it reasonably anticipated that the client would act in reliance upon their work product with financial and economic consequences. Accordingly, professional advisors such as lawyers and accountants are commonly said to assume responsibility for economic loss suffered by their clients.

Distinguishing the situation of the builder in the case under consideration from that of a professional advisor, the Court of Appeal found that P.E. Jones had not assumed any additional responsibility for Mr Robinson's purely financial loss. There was no professional relationship and no provision of professional reports by P.E. Jones. The Court of Appeal considered that the parties' dealings did not evidence any assumption of responsibility for pure economic loss on P.E. Jones' part. As observed by L.J. Jackson: "When one moves beyond the realm of professional retainers, it by no means follows that every contracting party assumes responsibilities (in the Hedley Byrne sense) to the other parties co-extensive with the contractual obligations."

Moreover, the contract contained provisions to the effect that a claim could only be brought under the terms of the contract, effectively excluding a claim in tort. The Court viewed the parties' contract as the primary determinant of obligations in a relationship between a builder and their immediate client. They held that, "The contract represents a perfectly sensible allocation of risk between the parties. At the time of contracting, both parties were represented by solicitors and they must have known where they stood." While it was "a matter of great misfortune" that the defect in the chimneys was not detected until after the relevant contractual limitation period had lapsed, the provision restricting claims to any claim under the contract was not unreasonable.

 

Observations
The Court of Appeal's decision in J.A. Robinson v P.E. Jones helpfully clarifies that a building contractor will not be liable in tort for pure economic loss unless the contractor can be shown to have assumed additional responsibility for purely financial loss.


However, the facts of the case are to be distinguished from the modern EPC contract situation in which the EPC contractor also undertakes a design and engineering obligation. In undertaking design obligations the EPC contractor may be said to have reasonably anticipated that the client would act in reliance upon the design work product in proceeding to the construction stage. Accordingly, it can be said that an EPC constructor may have assumed responsibility for the accuracy of its design work and any economic loss arising from a defective design.


Parties also need to remain vigilant as to the agreed contractual terms to ensure no greater assumption of liability than is intended. In particular, care should be given to the drafting of exclusion clauses, which can used to expressly exclude tortious liability of the type discussed above. Contractors will benefit from expressly disavowing any assumption of additional responsibility beyond that contractually provided for.


This article was prepared by David J. Howell , Partner and Co-head of the firm's Construction Practice Group and the firm's International Arbitration and ADR Practice Group, and James Rogers , a Senior Associate, at Fulbright & Jaworski International LLP in London. For further information please contact either of the authors listed above.

 

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