ZainabMohamadZainordinKPFAB2006TTT
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CONTRACTOR’S LIABILITY TO THIRD PARTY FOR DEFECTIVE WORKS
ZAINAB MOHMAD ZAINORDIN
UNIVERSITI TEKNOLOGI MALAYSIA
PSZ 19: 16 (Pind. 1/97)
UNIVERSITI TEKNOLOGI MALAYSIA
BORANG PENGESAHAN STATUS TESIS i JUDUL:
CONTRACTOR’S LIABILITY TO THIRD PARTY FOR DEFECTIVE WORKS
SESI PENGAJIAN: 2005/2006 Saya
:
ZAINAB BINTI MOHMAD ZAINORDIN (HURUF BESAR)
mengaku membenarkan tesis ( PSM/Sarjana/Doktor Falsafah )* ini disimpan di Perpustakaan Universiti Teknologi Malaysia dengan syarat-syarat kegunaan seperti berikut : 1. 2.
Tesis adalah hak milik Universiti Teknologi Malaysia. Perpustakaan Universiti Teknologi Malaysia dibenarkan membuat salinan untuk tujuan pengajian sahaja. Perpustakaan dibenarkan membuat salinan tesis ini sebagai bahan pertukaran antara institusi pengajian tinggi. **Sila tandakan ( 3 )
3. 4.
SULIT
TERHAD
3
(Mengandungi maklumat yang berdarjah keselamatan atau kepentingan Malaysia seperti yang termaktub di dalam AKTA RAHSIA RASMI 1972) (Mengandungi maklumat TERHAD yang telah ditentukan oleh organisasi/ badan di mana penyelidikan dijalankan)
TIDAK TERHAD Disahkan oleh
__________________________ (TANDATANGAN PENULIS) Alamat Tetap : Kg. Pt. Lapis Gantong, Seri Merlong, 83100 Rengit, Batu Pahat, Johor Tarikh : 14th JULAI 2006
CATATAN : * ** i
_________________________ (TANDATANGAN PENYELIA) ASSOC. PROF. DR. ROSLI ABDUL RASHID Nama Penyelia
Tarikh : 14th JULAI 2006
Potong yang tidak berkenaan. Jika tesis ini SULIT atau TERHAD, sila lampirkan surat dari pihak berkuasa/ organisasi berkenaan dengan menyatakan sekali sebab dan tempoh tesis ini perlu dikelaskan sebagai SULIT atau TERHAD. Tesis ini dimaksudkan sebagai tesis bagi Ijazah Doktor Falsafah dan Sarjana secara penyelidikan atau disertasi bagi pengajian secara kerja kursus dan penyelidikan, atau Laporan Projek Sarjana Muda (PSM).
“We hereby declare that we have read this project report and in our opinion this project report is sufficient in terms of scope and quality for the award of the degree of Master of Sciences (Construction Contract Management).”
Signature
:
Name of supervisor
: ASSOC. PROF. DR. ROSLI ABDUL RASHID
Date
: 14th JULY 2006
Signature
:
Name of supervisor
: MR. JAMALUDDIN YAAKOB
Date
: 14th JULY 2006
CONTRACTOR’S LIABILITY TO THIRD PARTY FOR DEFECTIVE WORKS
ZAINAB BT MOHMAD ZAINORDIN
A project report submitted in partial fulfillment of the requirement for the award of the degree of Master of Sciences (Construction Contract Management)
Faculty of Built Environment Universiti Teknologi Malaysia
JULY 2006
i
I declare that this project entitled “Contractor’s Liability to Third Party for Defective Works” is the result of my own research expects as cited in the references. The report has not been accepted for any degree and is not currently submitted in candidature of any other degree.
Signature
:
Name
: ZAINAB MOHMAD ZAINORDIN
Date
: 14th JULAI 2006
ii
To my beloved Father and Mother, Sister and Brother. And Mustakim.
Thank you for your support, guidance and everything.
iii
ACKNOWLEDGEMENTS
In the name of Allah most gracious most merciful A research of this nature may not be undertaken without help and support of others. First and foremost, I would like to extend my sincerest and most heartfelt appreciation to Assoc. Prof. Dr. Rosli Abdul Rashid for his tireless supervision and guidance throughout the whole process of writing this dissertation. Extended thanks are also due to all my lecturers, without whom I would not have had the knowledge to proceed of writing this dissertation. I wish to thank the Universiti Teknologi MARA and Government of Malaysia for awarding me the scholarship that enables me to study in this course. Most of all, I wish to express my deep sense of gratitude to my family, especially to my parents, brothers and sisters for their never-ending support and encouragement, and to my fiancé for his encouragement, help and smile. Last but not least, thank you to all who have made this dissertation possible.
Thank you and God bless.
iv
ABSTRACT
In recent times, there have been increasing incidents of defective work in Malaysia and elsewhere due shoddy workmanship, cheating and sometimes, design errors. The consequences could be catastrophic and fatal as in collapsing buildings, and sometimes less dramatic, but no less catastrophic from a financial point of view. Most defects occur after the 18-month defect liability period but the problem arises when negligence action is brought by non-contracting party, who may be a subsequent owner of the building. With that in mind, that contractor’s liability does not stop with the contract and liability may rest in the field of torts: the objective of this research is determine the contractor’s liability to third party for defective works and look into the circumstances in which that the contractor liable or not liable towards those defects. The scope of this research is confined under conventional system where the contractor not involved in design and liability of contractor to third party in tort. The methodology of this research adopts from: the judicial decision of defective work (cases concerning contractor and third party), four-stage test and observation. After analyzing the data, the main findings signify the contractor’s liability to third party only in tort no duty in contract are, injury to third party, damage to property but not economic loss. As a conclusion with this research, a contractor owes a duty to exercise all ordinary and reasonable care and diligence in the performance of its work according to terms of contract; if he fails he is liable for resulting damages.
v
ABSTRAK
Kebelakangan ini, kecacatan kerja di Malaysia dan di tempat lain sering terjadi, lantaran kemahiran kerja yang kurang baik, penipuan dan adakalanya kesilapan reka bentuk bangunan. Ia boleh membawa bencana dan menyebabkan kematian sekiranya bangunan yang rosak itu runtuh dan ia juga memberi kesan dari sudut kewangan. Biasanya kerosakan terjadi selepas 18 bulan tempoh tanggungan kecacatan dan masalah timbul bila tindakan kecuaian itu di tuntut oleh pihak yang bukan berkontrak seperti pemilik bangunan yang berikutnya iaitu penghuni selepas pemilik bangunan yang asal. Tanggungan kontraktor tidak hanya terbatas kepada kontrak dan dalam keadaan tertentu kontraktor juga bertanggungjawab dibawah tort. Oleh itu matlamat kajian ini adalah untuk menentukan tanggungan kontraktor mengenai kecacatan kerja terhadap pihak ketiga yang tidak berkontrak dan melihat didalam keadaan yang bagaimana kontraktor boleh dipertanggungjawabkan atau tidak bertanggungjawab terhadap kecacatan tersebut. Skop kajian ini terbatas kepada kaedah biasa yang mana kontraktor tidak terlibat didalam mereka bentuk bangunan dan kajian hanya menumpu kepada tanggungan kontraktor dibawah undang-undang tort sahaja. Metodologi kajian adalah dengan mengambil keputusan mahkamah mengenai kecacatan kerja (kes berkaitan kontraktor dan pihak ketiga), pengujian empat peringkat dan penilikan. Selepas menganalisa data, penemuan menunjukkan kontraktor bertanggungjawab terhadap pihak ketiga dibawah tort (bukan di kontrak) hanya apabila pihak ketiga cedera dan mengalami kerugian atau kerosakan kepada harta tetapi bukan kerugian wang semata-mata. Kesimpulan dari kajian ini ialah kontraktor mempunyai kewajipan terhadap melaksanakan kerja dengan ketekunan dan kemahiran yang munasabah menurut terma kontrak, jika dia gagal, dia bertanggungjawab kerana mengakibatkan kecederaan, kerugian atau kerosakan kepada pihak ketiga.
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CONTENTS
Chapter
1
2
Contents
Page
Declaration
ii
Dedication
iii
Acknowledgements
iv
Abstract
v
Contents
vii
List of Diagrams
x
List of Figure
xi
List of Tables
xi
List of Cases
xii
INTRODUCTION
1
1.1
Background of the study
1
1.2
Statement of issues
3
1.3
Objective of Study
6
1.4
Limitation of Study
6
1.5
The Significant of Research
7
1.6
Research Method
8
1.7
Organisation of the report
9
CONSTRUCTION DEFECTS
10
2.1
Introduction
10
2.2
Definition of defects
11
2.3
Construction defects
11
2.4
Common types of construction defects
13
2.5
Causes of defects
14
2.5.1 Defects in materials
16
2.5.2 Construction faults
17
Classification of defects
17
2.6
vii
Chapter 3
Contents
Page
PROFESSIONAL LIABILITY
20
3.1. Introduction
20
3.2. The nature of Professions
21
3.3. Nature of the liability
22
3.4. Theories of liability
24
3.5. Professional liability
25
3.5.1. Contractual liability
26
3.5.2. Tortious liability
27
3.5.2.1. Concurrent liability
29
3.5.2.2. Liability to third parties
30
3.5.2.3. Loss or restriction of immunities
31
3.5.3. Can professional man be liable both in contract and
32
tort at the same time? 3.6. Standard of skill and care
33
3.6.1. Govern by statues
35
3.7. Remedies for professional negligence
37
3.7.1. Damages
37
3.7.2. Loss of remuneration
41
3.8. Exclusion or restriction of liability
42
3.8.1. Statutory restriction
42
3.8.1.1. Client
42
3.8.1.2. Third parties
43
3.9. Limitation of actions
44
3.9.1. When does time start to run against me in contract?
46
3.9.2. For how long will I be liable in contract?
46
3.9.3. When does time start to run against me in tort?
46
3.9.4. If the ownership of a building changes, is the
49
limitation period affected? 3.10. When does the cause of action occur?
50
viii
Chapter 4
Contents
Page
DATA ANALYSIS
51
4.1.
52
SECTION A : Results from the judicial decision of defective work (cases concerning contractor and third party)
4.2.
SECTION B : Four-stage test 4.2.1. First stage- Type of harms suffered 4.2.1.1. Injury to person or physical damage to other property
65 65 66
4.2.1.2. No physical damage but sustained the loss. 4.2.2. Second stage- Sufficient relationship of proximity
69
4.2.3. Third stage - Degree of Care
74
4.2.4. Fourth stage - Limitation of action
78
4.2.5. Diagramatic of the four-stage test
81
4.3. SECTION C: Observations
84 90
5
CONCLUSION
93
REFERENCES
98
ix
List of Diagrams Page Diagram 1.1
: Illustration of contractual relationship between contractor
7
and third party under conventional system. Diagram 3.1
: Illustration of the start date of the limitation period
45
Diagram 3.2
: Illustration of the operation for long stop provision
49
Diagram 4.1
: Illustration of the Pirelli case
82
Diagram 4.2
: Illustration of the Kettman’s case
84
Diagram 4.3
: First stage-test - Analysis of Liability in respect of damage
85
to property (Category A) Diagram 4.4
: First stage-test - Analysis of Liability in respect of pure
86
economic loss (Category B) Diagram 4.5
: Second stage-test - Analysis of Liability in respect of
87
proximity relationship Diagram 4.6
: Third stage-test - Analysis of Liability in respect of
88
contractor’s duty of care Diagram 4.7
: Fourth stage-test - Analysis of Liability in respect of
89
limitation of action
x
List of Figure Page Figure 2.1
: Results of Building Research Establishment’s analysis
16
of causes of building failure.
List of Table
Page Table 2.1
: Classification of damage to wall
19
Table 3.1
: Limitation period
51
Table 4.1
: Result from the judicial decisions in relation to
55
defective works in category of personal injury or physical damage to property. Table 4.2
: Result from the judicial decisions in relation to
61
defective works in category of pure economic loss.
xi
List of cases
Andrew Master Hones Ltd v Cruikshank & Fairweather [1981] RPC 16 Anns v Merton London Borough [1972] 1 AII ER 462 Argyll v Beaselink [1972] 2 Lloyd’s Rep. 172 Bank Bumiputera Malaysia Bhd v Tetuan Wan Mariam Hamzah & Shaik & Lain-lain [1994] 1 MLJ 124 Blyth v Birmingham Waterworks Co [1856] 11 Ex. 781, 784 Bolam v Friern Hospital Management Committee [1957] 1 W.L.R. 582; [1957] 2 AII E.R. 118 Bowen v Paramount Builders [1977] 1 NLZR 394 Bryan v Moloney [1995] 128 ALR 163 Carr v Inland Revenue Commissioners [1944] 2 AII ER 163 D & F Estates v Church Commissioner For England [1989] 2 AII ER 992 Donoghue v Stevenson [1932] AC 562 Dorset Yacht Co. Ltd v Home Office [1970] AC 1004 Dr Abdul Hamid Abdul Rashid & Anor v Jurusan Malaysia Consultant (Sued As A Firm) & Ors [1997] 3 MLJ 546 Dutton v Bognor Regis [1972] 1 QB373 Glasgow Corporation v Muir [1943] A.C. 448 Greaves & Co. v Bayham Meikle [1975] 1 WLR 1095 Hadley v Baxendale [1854] 2 CLR 517 Hedley Byrne & Co Ltd v Heller & Partner Ltd., [1964] AC 465 Hedley Byrne & Co. Ltd v Heller & Partners Ltd [1964] AC 465
xii
Junior Books v Vetechi [1982] 3 AII ER 201 Kerajaan Malaysia v Cheah Foong & Anor [1993] 2 MLJ 439 Kettman v Hansel Properties Ltd [1985] 1 AII ER 352 Lanphier v Phipos [1838] 8 C & P. 475 Lester v White [1992] 2 NZLR 483 Midland Bank v Hett, Stubs & Kemp [1979] Ch. 384 Morgan v Park Developments [1983] Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 Murphy v Brentwood District Council [1990] 2 AII ER 908 Pirelli General Cable Works Limited v Oscar Faber [1983] 1 AII ER 65 Rondel v Worsely [1969] 1 AC 191 RSP Architects & Engineers (Raglan Squire & Partners FE) v Management Corporation Strata Title Plan [1999] 2 SLR 499 ("Eastern Lagoon") RSP Architects & Engineers v Ocean Front Pte Ltd & Anor Appeal [1996] 1 SLR 751 ("Ocean Front") Saif Ali v Sidney Mitchell & Co. [1980] AC 198 Sharp v Sweeting & Son Ltd [1963] 1 WLR 665 Stephen Phoa Cheng Loon & Ors v Highland Properties Sdn. Bhd & Ors [2000] 4 MLJ 200 Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] 1 AC 80 Teh Kem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors [1995] 2 MLJ 663 Victoria University of Manchester v Hugh Wilson & Lewis Wormsley (a Firm) and Pochin (Contractor) [1984] 2 Con LR 43 Winnipeg Condominium Corporation v Bird Construction [1995] 121 DLR (4th) 193
xiii
CHAPTER 1
INTRODUCTION
1.1
Background of the study
Contractor is someone who contracts to build things or someone who contracts for and supervises construction, as of a building (Ashley, 1985). According Chan (2002), contractor’s obligation in a traditional contract to carry out and complete the works would require him to provide the workmanship and materials as required by the specifications given by the architect and engineers. Ficken (2006) similar acknowledge that the contractor is required to perform construction fully in accordance with the contract documents, usually consisting of at least plans, specifications and the building code within required time. Thus, if the contractors fail to construct in accordance with applicable contract documents, he is responsible for resulting damages.
All too often contractors believe that liability is limited to what is written in the contract. This is a grave misconception. Simon (1979) noted that there are many areas of contractual liability which are implied and not expressed. This implied contractual liability might be the contractor’s obligation to perform its work in a good workmanlike manner. Therefore, even when dealing with contractual liability,
the contractor is often subject to a scope of liability different from, and often more comprehensive than, that set forth in the written contract. Frank (1988) further supports that liability, obligations and responsibilities do not stop with the contract. There are broader and more inclusive. Liability may rest in the field of torts. Although the contract may specify that the contractor is obligated to act in a reasonable manner, even if the contract does not specify it the law of torts does.
As highlighted by Simon (1979), under the law of torts, every person owes every other the obligation to exercise reasonable care and skill. This obligation extends beyond the contracting party. It applies to all persons. The contractor may be liable for its failure to exercise reasonable care in the performance of his duties, even though it is fulfilling its contractual obligations. A contractor who lives by its contract is merely inviting potential liability.
As stated by Frankel (2005), the recent explosion in new construction has spawned, increased construction defect litigation. Construction defect litigation involves all types and sizes of building projects, but homes are its current focus, with the intensity of the concern growing rapidly. And he adds constructions defects can be defined is a failure by the contractor to comply with the terms of their contract regarding the standard and quality of workmanship and materials required. Supported by Holland (1992) where the Building Research Establishment Advisory Service study found that 58% all failures were due to faulty design, 35% of faults were due to the builder’s faulty execution of the work, 12% to failure of components or materials to meet acceptable performance, 11% of failures were due to misuse by the user of the building, see Figure 2.1. While, Frankel (2005) noted that the construction defects can arise from improper soil analysis / preparation, site selection and planning, architectural design, civil and structural engineering, negligent construction or defective building materials.
The number of construction-defect cases has surged in recent years because houses are being constructed in record numbers to meet the high demand for 2
housing.
Many general contractors are inexperienced and others mass produce
thousands of houses.
The home construction industry is intensely competitive.
Many builders respond to the competition with low bids for contracts, then cut corners, and frequently employ unskilled or overworked subcontractors and poorly supervise subcontracted work (Summerlin and Ogborn, 2006).
The reality of the problem is that it is extremely difficult to avoid claims in construction industry. This is because of one very simple factor. It is human to err. As we know the production of construction products is a risky, complex and lengthy process.
It involves several specialists such as the project manager, architects,
landscape architects, engineers, land surveyors, quantity surveyor, general contractor, specialist contractor and suppliers.
1.2
Statement of issues
A contractor is responsible to rectify at his own cost ‘any defects, shrinkages or other faults’ which appear during the specified Defective Liability Period specified in the Appendix of the contract.1 But, sometimes we heard or read in the newspaper that building or structure has failed and collapsed.2 Normally the collapsed building is not under the Defect Liability Period anymore e.g. Highland Tower case3. The news often highlighted the financial loss suffered by some people. In the worse scenario a number people were reported to be injured or have died as a result.
1
Clause 15.2, The PAM 1998 Form New Straits Times, 1993, Two Collapsed Blocks of the Highland Towers Condominium, Kuala Lumpur. 3 Stephen Phoa Cheng Loon & Ors v Highland Properties Sdn. Bhd & Ors [2000] 4 MLJ 200 2
3
As Nicholas Mun (2001) stated in New Straits Time on Towards Defect Insurance, the Federation of Malaysian Consumer Associations (Fomca) deputy president N. Marimuthu said, "Most defects occur after the 18-month defect liability period. Such a move would be well-received by purchasers as they will know which party they can claim from when a defect occurs”. Borja and Stevens (2002) supports that where an apparently completed building is found to contain defects of design or construction. While Cama (2004) noted that most construction defects are latent defects, where the defects only become apparent at some later date. Supported by Frank and James (1988) that defects appears beyond the date issue of a Certificate of making goods defects if what are known as "latent" defects arise, then the employer retains a right to pursue a claim against the contractor for damages, provided of course that the defect is a result of the contractor's breach of contract and that it is not time-barred.
Nicholas Mun (2001) found that poor quality and shoddy workmanship are two issues the property industry has been wrestling with since the boom in mass housing began in the early 80s. Ter Kah Leng (1989) supported that in construction, structural or other defects may be caused by a number of factors including negligent design, inferior materials, inadequate supervision, shoddy workmanship or other forms of negligent construction. Rajendra Navaratnam (2004), similar indicated that there have been increasing incidents of defective construction works in Malaysia and elsewhere due to shoddy workmanship, negligent, cheating and sometimes and design errors. And he adds “The consequences could be catastrophic and fatal, such as in collapsing buildings and sometimes less dramatic, but no less catastrophic from a financial point of view”.
Clearly that defective construction works give the bad implications and effects, where, Summerlin and Ogborn (2006) found that poor quality workmanship can result in a long list of defects. And he add that hundreds of thousands of homeowners realize their new homes suffer from some type of construction defect that will cost thousands of dollars to repair, depreciate the value of their home, or force them to leave their home. Borja and Stevens (2002) similar indicated, each 4
year, homeowners and commercial property owners bring numerous lawsuits, alleging damage resulting from defective construction of faulty repair work. Also, Marianne (2005) supported that thousands of homeowners nationwide have sued or turned to contractor and insurers for repair costs, a daunting process that takes a financial and emotional toll. Thus, building defects spoil homeowners' dreams.
Besides, in the context of defective buildings, Rajendra Navaratnam (2004) stressed that the major stumbling block in majority of cases is the recovery of the costs of rectification of defects, which are discovered before physical damage occurs. This loss, which is the cost of repair, lost profits or diminution in value of the building, is classified as “pure economic loss”. Nevertheless, as stated by Borsook and Cook (1998), if the building was negligently constructed, the building owner will eventually be faced with task of repairing the defects. Depending on the terms of the construction contract between the owner and the contractor, the initial owner of a building will usually have recourse against the contractor. The problem arises when negligence action is brought by a non-contracting third party as a subsequent owner of the building with the contractor. Also, the issue here, is they have any recourse against the contractor for the cost of repairs?
The worse scenario could be catastrophic and fatal, such as in collapsing buildings. According Ter Kah Leng (1989), if the defective building collapses and can causes personal injury or physical damage to other property, therefore the injured person may bring an action in negligent construction to claim compensation for injury or loss of life against the contractor, surveyor, architect or engineer at fault. The problem arises when a negligence action is brought by a non-contracting third party or there are no privity of contract between the injury person and wrongdoer, for example between contractors to the third party.
The gist of the problems really is ‘a defect for which there is no contractual remedy available to the plaintiff and a breach of tortious duty by the defendant.’ Is contractor liable? How is he liable and what is his liability to third party? 5
1.3
Objective of Study
The objective of the research is to determine the contractor’s liability to third party for defective works and look into the circumstances in which that the contractor liable or not liable towards those defects.
1.4
Limitation of Study
The main thrust of this dissertation is on determining the contractor’s liability in relation to defective work. This study is limited the contractor’s liability to third party. The scope of this study will be confined to the following areas: a. Under conventional system b. Contractor’s liability in tort only. c. Cases related in construction defects brought in England, New Zealand, Australia, Canada, Singapore and Malaysia.
This study is limited under the conventional system because contractor not involves in design and planning, where the employer will enter into separate contracts with a professional for the design of the building works and contractor for the construction of the building works.
While, this study will be confined just contractor’s liability in tort because there is no privity of contract between the contractor and the third party. Refer diagram 1.1. Also, this is because, in practice, damage arising from defective work will not usually arise at the same time when the defective work is carried out but only after, and, in certain cases, much later than the completion of the works. 6
Developer Sale and Purchase
Consultant
Main Contract
Contractor
Purchaser (Third party)
No Contract
Diagram 1.1: Illustration of relationship between contractor and third party under conventional system
1.5
The Significant of Research
This research is very important in order to guideline the contractor’s liability to third party for defective works. This is because, in practice, damage arising from defective work will not usually arise at the same time when the defective work is carried out but only after, and, in certain cases, much later than the completion of the works.
Furthermore, this research also gives some information to the victim regarding their rights, when they have suffering from the defective building. The contractor must also be aware of what its legal rights are against the other contracting party. Thus, this research is perhaps would contribute towards enhancement of the contractor’s knowledge regarding their liability to third party under law of tort.
7
1.6
Research Method
In pursuance of the aim or objective as stipulated above, the primarily methods that have used to complete this project are research by literature review.
Sources for literature review are from books, journals, newspaper article, lecturer notes and magazines. These sources provide lots of data that can help to determine the background of the research, defective building, and nature of contractor’s liability relating to defective works.
All these reading sources can be obtained at the internet sites that are related to this dissertation and library; Perpustakaan Sulatanah Zanariah, UTM and Perpustakaan Tunku Abdul Razak, UiTM. Analysis of cases collected from Malayan Law Journal (MLJ).
The introduction stage of this research started with the overall overview of the defective building and present type of common defective building as in Chapter 2. This was followed by an extensive Literature Review on principle of liability under topic professional liability as in Chapter 3.
After setting the performance indicator and data collection stage, the following stage is the data analysis stage as in chapter 4. In this analysis will be focus on the contractor’s liability in relation to defective construction works to third party. The data analyses results make from the judicial decisions as reported in law reports and further explore related cases. This study also will be focus on what circumstances that the contractor is liable or not liable towards those defects. In this chapter, four-stage test will be use to in order to look the relevant situations concerning contractor and the third party in terms of defective works. Finally as in chapter 5, present the conclusion of research. 8
1.7
Organisation of the report
The dissertation consists of five chapters. The brief descriptions of each chapter are as follows:
Chapter 1: Introduction This chapter presents the overall content of the whole project writing. It introduces the subject matter, the problems that are purported to solve.
The objective is
specified with an appropriate research method to achieve them.
Chapter 2: Defective works This chapter with the overview the common type of building defects, general causes of building defects and classification of defects.
Chapter 3: Professional liability This chapter reviews the various definitions of liability and the different of liability under contract and tort. Also, highlights what are the extent of liability in relation to defective works, standard of skill and care and limitation of actions of their liability. It starts with identify the nature of professions.
Chapter 4: Results and Analysis - Contractor’s liability This chapter analyse the results from the judicial decisions as reported in law reports and further explore related cases regarding the contractor’s liability to third party for defective construction works and what circumstances that the contractor liable or not liable. Attempts were made to analyse the reported judicial decisions and to state the law there from.
This would allow not only the law to be stated, but equally
important, it allows the law to be assessed in relation to the facts as found by the court.
Chapter 5: Conclusions This chapter presents the conclusions for the overall dissertation.
9
CHAPTER 2
DEFECTIVE WORKS
2.1. Introduction
A house is generally homeowners’ single most valuable financial investment and one of the most important emotional investments. To them it is more than bricks and mortar; it is the place where they live, rest, and raises their families. Unfortunately, as stated by Summerlin & Ogborn (2006), hundreds of thousands of unsuspecting homeowners realize their new homes suffer from some type of construction defect that will cost thousands of dollars to repair, depreciate the value of their home, or force them to leave their home.
This chapter focuses in the overview the common type of building defects, general causes of building defects and classification of defects.
10
2.2. Definition of defects
According Webster’s dictionary defines; a. The word ‘defect’ as lack of something necessary for completeness shortcoming and other means as an imperfection; fault; blemish. b. Another term for ‘defect’ is deficiency. Webster’s dictionary defines the word deficiency as state or quality of being deficient, a shortage or deficit. c. The word ‘deficient’ as to be wanting, lacking in some quality necessary for completeness; defective or one that is deficient.
Appropriately, the Oxford Dictionary of Law defines defect is a fault or failing in a thing. Similar indicated by the Oxford Concise English Dictionary defines defects as ‘lack of something essential or required; imperfection; a shortcoming or failing; a blemish; the amount by which a thing falls short”. Appropriately with Cama (2004), the definition of a defect in the context of a building contract is “a failure of the completed project to satisfy the express or implied quality or quantity obligations of the construction contract.”
2.3. Construction defects
A construction defect may include any problem that reduces the value of a home, condominium, or building. Construction defects can be the result of design error by the architect, a manufacturing flaw, defective materials, improper use or installation of materials, lack of adherence to the blueprint by the contractor, or any combination thereof (Summerlin and Ogborn, 2006).
11
Construction defect is essentially defined by state laws and court definition and interpretation. In defining construction defect, the states and trial courts have created a complex issue. Marianne (2005), define construction defect as a failure of a building component to be erected in the appropriate manner. Sweet (1993) similar acknowledge that the construction defects defined by the law as failure of the building or any building component to be erected in a reasonably workmanlike manner. According Cama (2004) defects are often referred to as patent defects and the latent defects. Where the Latent defects are the opposite of patent defects. a. Patent defects are discoverable upon examination or shortcoming in a structure that is apparent to reasonable inspection for example a roof leak or a foundation crack. Normally, defects are readily apparent to the naked eye and are therefore capable of being assessed and measured relatively easily and then, if necessary, rectified. b. Latent defects are those hidden or concealed defects that would not be discovered in the course of a reasonable inspection. A latent defect is by definition something that is not easily discoverable. Normally, defects only become apparent at some later date or upon an investigation of some consequential effects caused by the defect.
With latent defects the courts will award monetary damages. Patent defects that have been covered up by the vendor, will often be interpreted as latent defects by the courts, in order to award some kind of relief. Whether a defect is classified as a patent defect or latent defect is up to the judge and the outcome sometimes surprising (Cama, 2004).
In Victoria University of Manchester v Hugh Wilson & Lewis
Wormsley (a Firm) and Pochin (Contractor),4 it was held that the latent defects is one which could not be discovered by such an examination as a reasonably careful man skilled in that matter would make. Thus, as stated by Chan (2002) by its nature, a latent defect cannot be discovered until it becomes patent and yet it may not be
4
(1984) 2 Con LR 43
12
discovered immediately since there may be no immediately apparent signs to indicate the presence of the defects.
Again, as stated by Chan (2002) in Singapore perspective, this has created new challenges to those who suffer as a result of the said defects and wish to seek compensation. Whereas claims by the developers/owner in respect of patent defects may be pursued pursuant to the main contract with the contractor, difficulties in obtaining compensation for loss suffered in respect of latent defects turned patent may arise when: a. The applicable limitation period has expired when the latent defects becomes apparent; b. The latent defects becomes apparent only after the developer/owners have sold the completed structure thereby diminishing the value of the same and now classified as pure economic loss in a tortious claim relating to defects.
2.4. Common types of construction defects
As stated by Kenneth (2002), common types of construction defects include: structural defects resulting in cracks or collapse; defective or faulty electrical wiring and/or lighting; defective or faulty plumbing; inadequate or faulty drainage systems; inadequate or faulty ventilation, cooling or heating systems; inadequate insulation or sound proofing; and inadequate fire protection/suppression systems. Additionally, dry rot, wood rot, mold, fungus, or termite or vermin infestation may also be the result of a construction defect. A construction defect may also include damage caused by land movement or earth settlement.
13
According Marianne (2005), recognized certain grounds for relief based on alleged defects in construction, which can typically be grouped into the following four major categories: a. Design deficiencies – buildings and systems do not work as intended (a condition alleged to be a construction defect – i.e., roof systems may be prone to leaks due to their design complexity), from a design standpoint. b. Material deficiencies – use of inferior building materials or installed components causes certain conditions (windows that leak or fail to perform and function adequately, even when properly installed). c. Construction deficiencies – poor quality or substandard workmanship manifests in certain conditions (i.e., water infiltration through some portion of the building structure). d. Subsurface / Geotechnical Problems – soil conditions that are not properly addressed during construction result in certain conditions (i.e. cracked foundations).
2.5. Causes of defects
Defects occurs either because of poor design, low quality workmanship or because the building was not constructed according to the design or because it has been subject to factors not allowed for in the design. The reason for giving these examples is too indicate the way in which a defect arises. According Ashley (1985), simple examples of causes and effects are: a. Poor workmanship in construction could cause penetration of dampness shown up by a damp patch on the wall, the resulting defects which is a 14
change in appearance; or the result could be rot in timber, a change in composition. b. Insufficient attention to foundation design could lead to ground movement indicated by cracks in the brick walls, a change in construction; perhaps also with a sagging roof, a change in shape. c. Not allowing for heavy trolley traffic in the design of a sheltered could result in wear and tear causing changes in appearance to the floor finishes.
However, according Chan (2002), two aspects of defects are seldom considered. First, the build ability of the design which determines whether good workmanship can ever be achieved if the necessary reasonable care and skill are present. Secondly, the durability of the materials which represents the life span of each material in given environment before it deteriorates, either partially or wholly.
As stated by Holland (1992), a number of analyses of building failures have been carried out to determine whether they were due to poor design, construction, materials or misuse by the occupier. The Building Research Establishment Advisory Services study, found that 58% of all failures were due to faulty design (design in this context is often building construction design and detailing and not necessarily engineering design; 35% of faults were due to the builder’s faulty execution of the work; 12% to failure of components or materials to meets acceptable performance; 11% of failures were due to misuse by the user of the building. (There is inevitably overlap since some faults are due to multiple causes). Refer Figure 2.1.
15
Figure 2.1: Results of Building Research Establishment’s analysis of causes of building failure (Holland, 1992)
2.5.1. Defects in materials
Products made with cement such as precast, in situ concrete and concrete blocks will shrink irreversibly.
To attach expanding brick slips to a shrinking
concrete beam with an inflexible adhesive, for example, is to invite trouble. According Holland (1992), materials have differing coefficients of thermal and moisture expansion and when they are used in combination it is necessary to accommodate the varying movement. There have been serious serviceability failures with some modern materials. Joint sealants, for example, have broken down under exposure to ultraviolet light from the sun within five years and polystyrene in contact with PVC can ‘drain’ the plasticizer from it making the PVC brittle and causing the polystyrene to shrink away. 16
2.5.2. Construction faults
Construction defects may occasionally be found in an old building it is in the post-war stock that the majority will be found. The causes are complex. Most are due to failing standards of workmanship, inadequate understanding of how nontraditional materials should be worked and installed, together with poor supervision; although genuine mistakes are sometimes deliberately hidden so as to avoid the cost and embarrassment of remedial work. In detecting this kind of defects, therefore, it is almost as important to understand human nature as it is to understand engineering principles (Holland, 1992).
2.6. Classification of defects
As stated by Holland (1992), classifications can be subjective and different investigators may classify the same defects as ‘minor’, ‘slight’, ‘moderate’ or even ‘very severe’. Categories based solely on crack width previously formulated by others have been abandoned because such measurements will often not produce a clear evaluation of the scale of damage. Also such a limited classification is not based on cause or possible worsening of the defect.
Building Research
Establishment recommend three broad categories of damage as a start to defining degree and suggest ‘aesthetic’, ‘serviceability’ and ‘stability’.
The first group
(categories 0, 1 and 2, in Table 2.1) affects only the appearance of a building. The second group (categories 3 and 4) covers cracking and distortion. The third group (category 5) is where there is an unacceptable risk of partial or complete structural collapse (Holland, 1992).
17
Category
Degree of
of damage
damage
Description of typical damage
Approximate crack width (mm)
0
Negligible
Hairline cracks of less than about Up to 0.1 0.1 mm widths are classified as negligible.
1
Very slight
Fine cracks which can be treated Up to 1 during normal decoration. Perhaps isolated slight fracturing in building. Cracks rarely visible in external brickwork.
2
Slight
Cracks easily filled. Re-decoration Up to 5 probably required. Recurrent cracks can be masked by suitable linings. Cracks
not
necessarily
visible
externally; some external repointing may be required to ensure weather tightness. Doors and windows may stick slightly.
3
Moderate
The cracks required some opening 5 to 15 (or a up and can be patched by a mason. number of Repointing of external brickwork cracks up to 3) and possibly a small amount of brickwork to be replaced.
Doors
and windows sticking. Service pipes may fracture.
Weather tightness
often impaired.
4
Severe
Extensive repair work involving 15 to 25 but breaking-out and replacing sections also depends on
18
of walls especially over doors and number of windows. Window and door frames cracks distorted. Floor slipping noticeably, walls leaning or bulging noticeably, some loss of bearing in beams. Service pipes disrupted.
5
Very severe
This requires a major repair job Usually greater involving partial or complete re- than 25 but building. Walls shoring.
Beams lose bearing. depends number
lean
badly
and
require of cracks
Windows broken with
distortion. Danger of instability.
Table 2.1: Classification of damage to wall (Holland, 1992).
19
CHAPTER 3
PROFESSIONAL LIABILITY
3.1. Introduction
As we know building involves many different teams and firms with different skill, expertise and capabilities that may come from different part on the country. They comprise of many different professionals such as the project managers, architects, landscape architects, C&S engineers, M&E engineers, IT consultants, interior decorator, land surveyors, quality surveyor, general contractor, specialist contractor and suppliers (Rosli Abdul Rashid, 2006). According Siddharaj (1996), a professional is recognized as a person who has a specialized body of knowledge and has received intensive training in a particular field.
This chapter focuses in the professional liability as a lead principle of liability in legal perceptions.
20
3.2. The nature of Professions
As stated by Jackson and Powell (1987), a definition of ‘the professions’ is pre-eminently a matter for social historians or for sociologists rather than lawyers. Generally speaking, however, the occupations which are regarded as professions have four characteristics.
a. The nature of the work The work done is skilled and specialized. A substantial part of the work is mental rather than manual. A period of theoretical and practical training is usually required, before the work can be adequately performed.
b. The moral aspect Practitioners are usually committed, or expected to be committed to certain moral principles. They are expected to provide a high standard of service for its own sake.
c. Collective organization Practitioners usually belong to a professional association, which regulates admission and seeks to uphold the standards of the profession. Such associations commonly set examinations to test competence and issue professional codes on matters of conducts and ethics.
d. Status A ‘profession’ involves the idea of on occupation requiring either purely intellectual skill, or of manual skill controlled. 21
The matter arose again in Carr v Inland Revenue Commissioners5, in Court of Appeal, Du Parcq L.J. stated: “…before one can say that a man is carrying on a profession, one must see that he has some special skill or ability or some special qualifications derived from training or experience. Even then one has to be very careful, because there are many people whose work demands great skill and ability and long experience and many qualifications who would not be said by anybody to be carrying on a profession”.
3.3. Nature of the liability
Definition of liability in Osborne Concise Law Dictionary is ‘an amount owed; or subject to legal obligation; or the obligation itself, he who commits a wrong or break on a contract or trust is said to be liable or responsible for it’. Similar indicated in Dictionary of English Law, liability is potentially subject to obligation, either generally as including every kind of obligation or in more special sense to denote inchoate, future unascertained or imperfect obligation, as opposed to debt, to essence of which is that they are ascertained and certain. While, in Burton’s Legal Thesaurus defined liability is accountability, accountable, amenability and answerability.
According Borja and Stevens (2002) a liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. While, Frankel (2005) in any legal responsibility, duty or obligation, the state of one who is bound in law and justice to do something which may be enforced by action. This
5
[1944] 2 AII ER 163
22
liability may arise from contracts either express or implied or in consequence of torts committed.
A situation in which one party is legally obligated to assume responsibility for another party's loss or burden. Liability is created when the law recognizes two elements ‘the existence of an enforceable legal duty to be performed by one party for the benefit of another' and the failure to perform the duty in accordance with applicable legal standards (Jackson and Powell, 1987). An obligation is in Webster's Revised Unabridged Dictionary defined as an acknowledgement of a duty to pay a certain sum or do a certain things; any act by which a person becomes bound to do something.
Furthermore, Frank (1988) noted that in law, a person may owe a duty to another person by his own free will in a Contract or bay the operation of common law of Tort.
The failure to perform or negligently perform these duties or
responsibilities constitute a breach, therefore he or she will be answerable or accountable to the other party who may have suffered as a result of his/her wrongful act.
According Siddharaj (1996), the main element in liability is duty and responsibility. The duty and responsibility of the various parties in a construction project may arise from contract or law of tort or both. It is also very much associated with the interrelationship between them and the scope and nature of services they provided in the project.
23
3.4. Theories of liability
According Marianne (2005), depending on jurisdiction, plaintiffs can sue on any one or a combination of the following theories of liability, each with differing types and calculations of recovery: a. Strict liability or Negligence Per Se (i.e., violation of building code or other law) b. Negligence (i.e., in the exercise of a reasonable degree of care, skill and knowledge ordinarily employed by such building professionals) c. Breach of Contract (i.e., as set forth in the purchase and sale documentation) d. Breach of Implied or Express Warranty (i.e., that the completed structure was designed and constructed in a reasonable workmanlike manner and usable for its intended purpose) e. Fraud (Intentional Misrepresentation) and Negligent Misrepresentation (i.e., on the grounds that the developer or property manager intentionally misrepresented the quality of construction in false statements and/or advertisements) f. Breach of Fiduciary Obligation (i.e., that directors and/or officers of homeowners’ associations have failed to adequately protect their residents’ rights or interests) g. Negligent and intentional infliction of emotional distress (i.e., that, as a result of a given action or defective condition, the homeowner has suffered emotional distress) h. Nuisance (i.e., loss of enjoyment and use of property as a result of a defective condition) i. Products Liability (i.e., claims of a defective condition in installed components)
24
3.5. Professional liability
According Jackson and Powell (1987), the professions operate in spheres where success cannot be achieved in every case. Very often success or failure depends upon factors beyond professional man’s control. Even where the critical factors are within the professional man’s control, he still cannot guarantee success.
The problem which the courts have faced in devising a rational approach to professional liability6 is that they must provide proper protection for the consumer. Broadly speaking, the solution which has been found is to require that professional men should possess a certain minimum degree of competence and that they should exercise reasonable care in the discharge of their duties. In Greaves & Co. v Bayham Meikle7, Lord Denning M.R. stated: “Apply this to the employment of a professional man. The law does not usually imply a warranty that he will achieve the desired result, but only a term that he will use reasonable care and skill. The surgeon does not warrant that he will cure the patient. Nor does the solicitor warrant that he will win case.”
Barros (1989) noted that the degree of success expected from different professions may vary. Thus, the professional man as defendant enjoys a privileged position.
His privileged position has been eroded in certain respects by
developments in the law of contract and tort.
6
Liability must, of course, be established on balance of probabilities. In Bater v Bater [1951] P. 35 Denning L.J. said: “So also in civil cases, the case may be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject matter… The degree of probability which a reasonable and just man would require to come to a conclusion” 7 [1975] 1 WLR 1095
25
3.5.1. Contractual liability
The word ‘contract’ may be defined as ‘an agreement enforceable by law’.8 As stated by Jackson and Powell (1987), the law of contract is the principal means by which the courts have exercised control over the conduct of professional men. In most instances there is a contract between the professional man and his client, whereby the former agrees to render certain services and the latter agrees to pay. Davies (1989) noted that contractual liability arises from breach of duty imposed by the terms and conditions of the contract entered into by the parties concerned. In such a contract there is generally implied by law a term that the professional man will exercise reasonable skill and care9.
As Oliver J. pointed out in Midland Bank v Hett, Stubs & Kemp10, the obligation to exercise reasonable skill and care is not the only contractual term which ought to be considered in a professional negligence action, there are implied terms that he will draw up the option agreement and effects registration. The importance of specific terms such as these is that a professional man will be liable if he breaks them, quite irrespective of the amount of skill and care which he has exercised (Jackson and Powell, 1987). In the absence of express term to the contrary effects, there is implied by law a term that the professional man will carry out these activities with reasonable skill and care and fit for the purpose.
Barros (1989) emphasises that the common law rule is that no one can sue or be sued on a contract to which he is not a party.
8
Section 2(b), Contract Act 1950 This common law principle is now embodied in s.13 of the Supply of Goods and Services Act 1982. 10 [1979] Ch. 384 9
26
3.5.2. Tortious liability
According Barros (1989), defining ‘tort’ is difficult because of the extreme variety of behaviour it encompasses, e.g. intentionally or negligently causing physical injury, interfering with the enjoyment of land, defamation, conspiring to cause financial loss and so on.
A problem is sometimes experienced in
distinguishing between the torts of nuisance and negligence. While, as stated by Winfiels and Jolowicz (2002), a tort is some wrongful act, such as negligence, which gives rise to a right of action. Winfield’s definition of tort was as follows:
‘Tortious liability arises from the breach of a duty primarily fixed by the law; this duty towards persons generally and its breach is redressible by an action for unliquidated damages.’
Norchaya Talib (2003) found that the law of tort in Malaysia is largely derived from the common law of England. This means that the basic rules governing law of tort in Malaysia are to be found in English decisions. Local cases have applied these rules without substantial changes. Jackson and Powell (1987) noted that the tort of negligence is complete when three conditions are satisfied: a. The defendant owes a duty of care to the plaintiff. b. The defendant has acted or spoken in such a way as to break that duty of care. c. The plaintiff has suffered damage as a consequence of the breach.
Since Donoghue v Stevenson11 the extension of the tort of negligence into areas where previously no remedy existed or the existing remedies seemed to be inadequate has been identified as a policy decision:
11
[1932] AC 562
27
‘The general trend in the policy of the law as developed by your Lordships’ House in recent years has been to extend to new areas of activity the notion that a man is liable for loss or damage to others resulting from his failure to take care.”
The landmark cases which mark this development are Hedley Byrne & Co Ltd v Heller & Partner Ltd.,12 Dorset Yacht Co. Ltd v Home Office13 and Anns v Merton London Borough Council.14 According Jackson and Powell (1987), in order to establish that a duty of care arises in a particular situation, it is not necessary to bring the facts of that situation within those of previous situations in which a duty of care has been held to exist. Rather the question has to be approached in two stages. First one has to ask whether, as between the alleged wrongdoers and the person who has suffered damage there is sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, careless on his part may be likely to cause damage to the latter – in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed or the damage to which a breach of it may give rise. Lord Wilberforce’s two-stage test as formulated in Anns remains an extremely useful guideline in difficult cases in determining (a) whether a duty of care exists and (b) what is its scope. The House of Lords applied his two-stage test in Junior Books Ltd v Veitchi Co. Ltd.15
12
[1964] AC 465. Held that, in absence of a disclaimer, bankers may be liable to third party for a negligent misstatement as to the financial stability of their customer, with whom that third party proposed to do business. It was immaterial that the third party would suffer only financial loss. Such liability for negligent misstatement could arise in the absence of a contract, provided there was a special relationship between the parties. 13 [1970] AC 1004, in which it was held that borstal officers supervising borstal boys, who were working on a island in Poole Harbour, owed the plaintiffs a duty to take reasonable care to prevent the boys damaging their property. 14 [1978] AC 729. Held that a local authority inspecting foundations pursuant to statutory powers owed a duty of care to future owners or occupiers of the premises. 15 [1983] AC 520. Held that a specialist sub-contractor would be liable in tort to the building owner for economic loss caused by defects in the floor which the sub-contractor had laid.
28
Davies (1989) noted that in the context of professional negligence, there have been four developments whereby liability has been substantially extended: a. The professional man has been held liable to his client concurrently in contract and tort. b. The professional man has been held to owe a duty of care to an increasingly wide range of persons who are not his clients. c. The traditional immunities have been swept away or restricted. d. The protection afforded by the Limitation Act has been narrowed.
3.5.2.1
Concurrent liability
As stated by Siddharaj (1996), the existence of a contractual relationship between the professional man his client prevented any independent liability in tort arising. The professional man was liable only for breach of contract.16 However, the courts held that professional men were liable to their clients for breach of duty both in contract and tort.
In Argyll v Beaselink (1972)17, Megarry J. suggested that the implied contractual duty to exercise reasonable skill and care may, on occasions, actually impose a higher standard than the duty of care in tort. The delegation of contractual duties and vicarious liabilities are, however, exceptions to this ‘reasonable care’ approach. In Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd18 the Privy Council cast doubt on the principle of concurrent liability, Lord Scarmin giving the opinion of the Judicial Committee of the Privy Council, stated: “Their lordships do not believe that there is anything to the advantage of the law’s development in searching for a liability in tort where the parties are in a
16
Bagot v Stevens Scanlon & Co. Ltd [1966] 1 QB 197 [1972] 2 Lloyd’s Rep. 172 18 [1986] 1 AC 80 17
29
contractual relationship. This is particularly so in a commercial relationship. Thought it is possible as a matter of legal semantics to conduct an analysis of the rights and duties inherent in some contractual relationships. …. If any, terms are to be implied as matters of tort law when the task will be identify a duty arising from the proximity and character of the relationship between the parties. For the avoidance of confusion in the law to adhere to the contractual analysis; on principle because it is relationship in which the parties have”.
As stated by Davies (1989), for example to avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort is in the limitation of action.
3.5.2.2
Liability to third parties
As stated by Barros (1989), the professional man has been held to owe a duty of care to an increasingly wide range of persons who are not his clients. Similarly indicated by Jackson and Powell (1987), following the Anns’ case, the proposition that a professional person owes a duty to no one other than his client is clearly untenable. Equally untenable would be the suggestion that he owes a duty of care to all those who are likely to be adversely affected by his acts or omissions. While, the application of the second test by Lord Wilberforce in the Anns’ case ought to reduce or negate the duty owed by the professional persons to third parties.
a. Much of the professional man’s work is directed towards protecting his client against other persons with opposed interest or promoting his client’s interests to the detriment of other parties. b. Some professional work, particularly in the realm of statements or reports which are widely circulated, has such far-reaching repercussions that it seems
30
unjust to hold the professional man liable for all foreseeable consequences of error.
Furthermore, Jackson and Powell (1987) emphasizes that the subsequent owners and users of the building have a common interest with the client, in their safety depends on the skill and care of the any professional members of that team such as either architect, engineer or contractor. In view of this, Barros (1989) supported that it is not surprising that the range of cases in which it has been held that they are or may be liable to third parties has been wider.
3.5.2.3
Loss or restriction of immunities
Certain professions have, by tradition, enjoyed immunity from suit on the grounds of public interest. Barros (1989) found that architects are no longer immune where certificates are negligently given and even the immunity of barristers which was thought to rest upon the absence of any contract between a barrister and his client, is now limited to work done in court and to small category of related pre-trial work. Observations on the extent of such immunities were made obiter in Rondel v Worsely19 and later discussed in Saif Ali v Sidney Mitchell & Co.20 when even the bar would lose its immunity altogether.
19 20
[1969] 1 AC 191 [1980] AC 198
31
3.5.3. Can professional man be liable both in contract and tort at the same time?
A statement of claim can be framed in such a way that it alleges both a breach of contract and tort as an alternative. The distinction between contract and tort is important because of the different periods of limitation, which is the time in which a claim can be brought, in each case.
However, where there is a contractual
relationship between two parties, particularly a commercial relationship, their obligations in tort cannot be any greater than those found expressly or by necessary implication in contract (Davies, 1989).
As stated by Siddharaj (1996), the contractor (defendant) may be liable on the same fact in contract to A and in tort to B. It is also established that the defendant may have a concurrent liability in tort and in contract to the same plaintiff, though the defendant may not recover damage twice over.
Furthermore, Davies (1989) suggested that the differentiating between tortious and contractual liability is to be found in the proposition that in tort the content of the duties is fixed by law, whereas, the content of contractual duties is fixed by the contract itself. However it is to be noted that nowadays in some cases contractual duties are fixed by the law. Torts aims principally at the prevention or compensation of harms, whereas, the ‘core’ idea of contract is about enforcing certain promises.
32
3.6. Standard of skill and care
The professional man must exercise reasonable skill and care. Supported by Evans (1979) the standard of care required in the particular situation needs to be establish. Similar indicated by Santhana Dass (2000) that the degree of care which the law requires is ‘that which is reasonable in the circumstances of the particular case’. In fact, Norchaya (2003) emphasizes that in Heaven v Pender21, Brett MR held that a duty of care exists in normal circumstances whereby if a person does not take usual degree of precaution another person or his property may be injured or damages.
In the dictum of Alderson B. in Blyth v Birmingham Waterworks Co22: ‘Negligent is the omission to do something which a reasonable man, guided upon those consideration which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do.’
Siddharaj (1996) found that the level of the reasonable man’s conduct is not at some impossibly high level. He is regarded as being the epitome of ordinariness. He is the ‘man in the street’ or ‘Mr. Average’. According to Lord Macmillan in Glasgow Corporation v Muir23, the standard or foresight of the reasonable man, he is ‘free from the both over-apprehension and from over-confidence’.
Evans (1979) noted that the standard is not a standard of perfection. In the case of a person who is in a position of exercising a special skill the standard expected is that of a person competent in that skill. A surveyor must be a reasonable
21
[1883] 11 QBD 503 [1856] 11 Ex. 781, 784 23 [1943] A.C. 448 22
33
surveyor, a contractor a reasonable contractor. Further, James (1994) suggested that contractor is expected to know current practice in the trade, to have knowledge of current regulations, and to be aware of any dangers involved in the trade, (e.g. dangers from the use of certain types of asbestos). Even if the standard practice has been conformed to, there may still be liability for negligent if the practice itself is unsound and unreasonable.
Nevertheless, according Jackson and Powell (1987), the common ground that the standard of skill and care must be determined by reference to members of profession concerned, rather than the man on the Clapham omnibus.24 As stated by Justice McNair in Bolam v Friern Hospital Management Committee:25 “Where you get a situation which involves the use of special skill or competence, then the test as to whether there has been negligence or not is not the test of the man on top of Clapham omnibus, because he has not got the special skill. He is ordinary man. The test is standard of the ordinarily skilled man exercising and professing to have that special skill or expertise”.
Siddharaj (1996) found that where the professional man involves the use some special skill or competence then the test as to whether there has been negligence or not is not the test of the man on the top of a Clapham omnibus, because he has not got this special skill. The test is the standard of the ordinary skilled man exercising and professing to have special skill. A man need not possess the highest expert skill: it is well established law that it is sufficient if he exercises the ordinary skill of on ordinary competent man exercising that particular art. Similarly acknowledge by Evans (1979) that there may be one or more perfectly proper standards: and if he conforms with one of those proper standards, then he is not negligent.
24 25
Bolam v Friern Hospital Management Committee [1957] 1 WLR 582 [1957] 1 W.L.R. 582; [1957] 2 AII E.R. 118
34
In Andrew Master Hones Ltd v Cruikshank & Fairweather,26 a case concerning patent agents, in which this point was argued, Graham J. stated: “The degree of knowledge and care to be expected is thus seen to be that degree possessed by a notional duly qualified person practicing that profession. The test is, therefore, if I may put it that way, an objective test referable to the notional member of the profession and not a subjective test referable to the particular professional man employed.”
Furthermore, as stated by Siddharaj (1996), where special skill is required for the work to be done, a reasonable man would not be expected to attempt it, unless he is capable of performing it by possessing such special skill. In Lanphier v Phipos27, Tindal C.J. held that: “Every person who enters into a learned profession undertakes to bring to the exercise of it a reasonable degree of care and skill. He does not undertake, if he is an attorney, that at all events you shall gain your case, nor does a sugeon undertake that he will perform a cure; nor does he undertake to use the highest possible degree of skill. There may be persons who have higher education and greater advantages than he has, but he undertakes to bring a fair, reasonable and competent degree of skill.”
3.6.1 Govern by statues
As stated by James (1994), the standard of performance or the standard of care that the contractor must exercise in discharging his/her duties is also govern by various statues: 26 27
[1981] RPC 16 [1838] 8 C & P. 475
35
a. The Defective Premises Act 1972 Stated under Section 1 the Act: ‘a person who is taking on work for or in connection with the provision of a dwelling, owed a duty to see that the work which he takes on is done in a workmanlike manner or as the case may be, in professional manner’.
This duty is owed to any person to whose order the dwelling is provided and also to every person who acquires a legal or equitable interest in the dwelling. A major limitation is that any cause of action under section 1 is deemed to have accrued at the time when the dwelling is completed.
b. Supply of Goods and Services Act 1982 The implied obligation of the contractor in relation to the materials used: -
That the contractor will carry out the work in a good and workmanlike manner;
-
That any materials supplied by him will be of good quality and reasonable fit for their purpose; and
-
That in the case of a dwelling house, it will be fit for human habitation.
Also stated under Section 13 of Act: There is an implied duty of care and skill imposed on the contractor requiring him to exercise the skill and competence required of an ordinary competent building contractor. In addition, will be reasonably fit for any purpose for which the contractor knew it would be required.28
28
Authority for the implication of this term dates from Harmer v Cornelius (1858) 5 CBNS. It is now contained in section 13 of the Supply of Goods and Services Act 1982
36
c. Others statues According John Murdoch (2000) the contractor’s duties is most important to followed the provision controlling building work are likely to be the Building Regulation 1985, the Health and Safety at Work Act 1974 and the Construction (Design and Management) Regulation 1994, but the contractor’s obligation extends much wider than these. JCT 9829 clause 6.1.1 makes it clear that there must be compliance with local authority byelaws and also with regulations made by statutory undertakers such as electrical, gas and water boards, to whose systems the works are to be connected.
3.7. Remedies for professional negligence
3.7.1. Damages
According Harrison (1988) a plaintiff30 seeking to remedy a civil wrong, either tort or contract, usually asks for money damages from the defendant. Damages may be based on personal injury, property damage or economic loss. Jackson and Powell (1987) emphasizes that an award of damages is the normal remedy sought for breach of duty by professional man, in certain circumstances he may be deprived of his fees. And he adds, that the recovery of damages is subject to the overriding requirement that the loss or damage for which compensation is sought,
29
Joint Contracts Tribunal Standard Form of Building Contract 1998 The term ‘plaintiff’ will be used in this section to describe the client or patient. The term ‘defendant’ will be used for the professional man. Often the roles are the other way round in practice, as when the professional man sues for his fees and the client counterclaims for professional negligence. 30
37
is not too remote. Broadly this requirement demands that the loss or damage must have been: a.
Caused by the breach of duty and
b.
Foreseeable
and
not
precluded
from
being
compensatable
by
considerations of public or social party.
Nevertheless, as stated by Jackson and Powell (1987), in cases of financial or economic loss31 it is sometimes even more difficult to identify when ‘damage’ occurs and therefore, when the cause of action accrues. The first problem is to identify which cases fall into this category at all. Very often damage to property only affects the plaintiff in the form of financial loss. The courts have repeatedly held that the measure of damage is not the cost of repair, but the amount by which the plaintiff has overpaid for the property.
Furthermore, Evans (1979) emphasises that the main remedy provided by English Law is damages. This is monetary compensation to cover the injury suffered so afar as money is able to compensate. And he adds that the damages may classify as liquidate and unliquidated.
a. Liquidated Where the liquidated damages are whenever amount claimed can be ascertained by calculation or fixed by a scale it is said to be ‘liquidated’. Often contracting parties will make provision for sum to be paid in event of breach of contract.
31
In an action of negligence, the plaintiff has suffered no damage to his person or property but has only sustained economic loss.
38
b. Unliquidated An award assessed to put the injured person, insofar as money can do so, in as good a situation as he would have been had he not been injured or had the contract been properly performed. This involved two issues: i. The remoteness of damages Is the wrongdoer to be liable for all consequences of his wrongful act, however remote? As stated by Evans (1979), there is a slight difference in approach to liability between that in contract that in contract and that in tort, as a result of the different legal relationship between the wrongdoer and the injured party. In contract, the ruling was set out in Hadley v Baxendale (1854)32: ‘Where two parties have made a contract which one of them has broken, the damage which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally’. In tort, the wrongdoer will be liable for any type of damage which is reasonably foreseeable as likely to happen even in the most unusual cases, unless the risk is so small that a reasonable man would in the whole circumstances feel justified in neglecting it.
ii. The measure of damages. According Evans (1979), assessment of the damage for which the wrongdoer has been held liable. The general rule is that damages must be assessed once and for all in a general lump sum. He noted that a duty to mitigate the loss
32
[1854] 2 CLR 517
39
suffered, the injured person must take any reasonable steps to lessen the extent of the damage caused by the wrongdoer.
Nevertheless, Davies (1989) supported that the principles which apply to the amount of damages awarded against any professional, be they architect, engineer or contractor by a court depend upon whether the claim is made in contract or tort. The principles are:
a) In contract i. Damages for breach of contract are to compensate the injured party for breach in performance; the amount of damages is assessed on the basis that they should be placed in the same position as if the contract had been performed; ii. Where there is some link between a breach of contract by one party and loss suffered by another, damages will be awarded, and if the loss is minimal, only nominal damages will be recovered; iii. The amount of damages recoverable is limited to damages which were within the reasonable contemplation of the parties at the time the contract was made; this is determined by reference to the actual or imputed knowledge of special circumstances giving rise to the damage.
b) In tort i. The wrong for which an injured party is compensated in tort is the tortious act itself, and damages are assessed on the basis that he should be put in the same position as he would have been in had that act not been committed; ii. In any action for negligence the link between the negligent act or omission and the damage which is claimed must not be too remote; the kind of damage which is suffered must be reasonable foreseeable;
40
iii. In claims for direct physical damage, once the test in (e) is satisfied, there is no need to go further, the injured party is entitled to recover the full extent of his loss; however, where pure economic loss is concerned (i.e. loss of profit), the extent of that loss must also be reasonably foreseeable; thus if the loss of profits are unusually high or are simply uncertain and speculative, they will not be recovered in damages. iv. Economic loss, or loss of profits, is recoverable as damages where it is the immediate consequence of physical damage. v. ‘Pure’ economic loss is only recoverable where there is a very close proximity between the parties, and the injured party has relied upon the person who had committed the negligent act.
3.7.2. Loss of remuneration
Jackson and Powell (1987) distinguished a further question which commonly arises is whether a finding of negligence disentitles the professional man to his fees. If the fees have been paid, the client will probably seek to recovery them. If they have not been paid, there will often be a counterclaim for the amount owing. The first matter to consider in every case is the nature of the contract between the parties. A solicitor’s retainer to bring or defend an action is usually an entire contract. An agreement with professional man to provide the normal services as defined in the contract. In a contract of the latter kind there can be no dispute as to defendant’s entitlement to be paid for those stages of the work which have been properly carried out. In any other case, where the defendant has substantially negligently performed the work, he is entitled to be paid the normal remuneration and the client must rely upon his remedy in damages.
41
3.8. Exclusion or restriction of liability
As stated by Jackson and Powell (1987), professional men do not normally seek to exclude or restrict their liability to clients or patients for breach of duty. In evidence to the Royal Commission on Legal Services the Law Society argued that it was “one of the marks of a fully developed profession” that they should not do so. Attempts to exclude liability to third parties are more common. This report stating that no liability is accepted to anyone other than the client.
3.8.1. Statutory restriction
3.8.1.1
Client
Section 2 (1) the Unfair Contract Terms Act 1977 provides that a person cannot “by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.” The term ‘negligence’ embraces both the tort of negligence and breach of any contractual obligation to exercise reasonable skill or care. Since the damage resulting from medical negligence is almost always some form of personal injury, doctors are effectively prevented from excluding or restricting liability for negligence. Other professions affected to a lesser extent are architects and engineers, whose negligence could on occasion lead to personal injury33 (Jackson and Powell, 1987).
33
Clay v Crump & Sons Ltd [1964] 1 QB 533
42
There can, of course no objection to a term limiting the task which a professional man undertakes (for example a surveyor may be instructed to report only on major structural defects). Once the task has been defined, it would seem contrary to the principles for which the professions stand if they could then contract out of liability. Section 11 (4) of the act provides that where a person seeks to restrict his liability in this way, the court shall have regard in particular to (a) the resources which he could expect to be available to him for the purpose of meeting the liability and (b) how far it was open to him to cover himself by insurance (Jackson and Powell, 1987).
3.8.1.2
Third parties
As stated by Jackson and Powell (1987), the exclusion of liability to third parties presents special problems. In the ordinary way, be reason of the doctrine of privity of contract, an exemption clause contained in the professional man’s contract of engagement will not be binding upon third parties. An architect cannot avoid liability to future purchasers of a building which he designs, by reference to an exemption clause contained in his original contract engagement. The professional man may in some cases be able to avoid undertaking any duty to third parties in the first place, by means of suitably worded disclaimer.
In Hedley Byrne & Co Ltd v Heller & Partners Ltd34 held that, since the defendant
bankers
stipulated
that
their
references
were
given
“without
responsibility,” they did not undertake any duty to the plaintiffs. “A man cannot be said voluntarily to be undertaking a responsibility if at the very moment when he is said to be accepting it he declares that in fact he is not.”
34
[1964] AC 465
43
If the professional man writes a report and knows that is required for production to a particular third party, who will act upon it, his position is different to that of the bankers in Hedley Byrne in two aspects. First, he is being paid for the work whereas the bankers in Hedley Byrne gave their references gratuitously. Secondly, there exists someone to whom a duty of care is certainly owed in contract and/or tort and so the third party can reasonably assume that proper care was taken in preparing the report. It is a question of law for the court whether a duty of care exists in any given situation. If the professional man expressly disclaims liability to third parties, that is obviously a material fact but it may not be conclusive in every case (Jackson and Powell, 1987).
3.9. Limitation of actions
As stated by Chan (2002) in Singapore perspective that the commencement date for plaintiffs to start an action based on latent defects has been postponed until the date of ‘discovery’ of the defect but with a cap of 15 years under a long-stop provision. The Limitation Amendment Act 1992 is modeled after the English Latent Damage Act 1986. This may be compared with the West Malaysian Limitation Act 1953. The East Malaysian states of Sabah and Sarawak, however, have modelled their legislation after the Indian legislation while Brunei has moved from the Indian legislation in 1991 to follow the English Limitation Act 1980 and Limitation Periods Act 1984.
The provision in Malaysia, Norchaya (2003) noted that the limitation period for plaintiff who is suing in contract and tort is six years, this is provided for in s 6(1) (a) of the limitation Act 195335. However, where the party sued is the Government
35
The liability of the government of Malaysia in tort is limited a provided by the Government Proceedings Act 1956 (Revised 1988) Act 359.
44
of Malaysia, s 2(a) of the Public Authorities Protection Act 1948 provides that the limitation period is three years.36
However, in English provision, as highlighted by Frank and James (1988, under the Limitation Act 1980 claim founded on tort or contract are barred after the expiration of six years from the date on which the cause of action accrues. Monica (2004) noted that the cause of action in contract accrues on the date when the breach of the contract occurs whereas, in tort, the cause an action accrues only on the date when the damage occurs. For an illustration of the impact on limitation arising from the difference in the start date of the limitation period between claims made in contract and made in tort, see Diagram 3.1.
Example: Facts: John engaged Brilliant Flooring Pte Ltd to install parquet flooring to his house. The parquet floor was laid on 1 January 2001. On 1 January 2002, the parquet flooring started to pop up due to Brilliant Flooring Pte Ltd’s defective installation.
Parquet flooring laid
Claim in contract time-barred 6 years
Popping of the flooring
Claim in tort time -barred 6 years
1 Jan 2001
1 Jan 2002
1 Jan 2007
1 Jan 2008
Diagram 3.1: Illustration of the start date of the limitation period (Monica, 2004)
36
Act 254 s 6 (1)(a) Save as hereinafter provided the following actions shall not be brought after the expiration of six year from the date on which the cause of action accrued, that is to say – actions founded on contract or on tort.
45
3.9.1. When does time start to run against me in contract?
As highlighted by Davies (1989), in an action for breach of contract time, or more precisely, the limitation period, then time starts to run at the date on which the contract was broken. The limitation period is 6 years for breach of a simple contract made either orally or in writing. The fact that the relevant limitation period has expired does not prevent a claim from being raised. Rather it offers the opportunity to say in defence that the claim should not succeed because it has been brought out of time.
3.9.2. For how long will I be liable in contract?
According Davies (1989), a claim for breach of contract must be brought within the limitation period, otherwise it is statute barred, that is the time prescribed by statute in which the claim should have been brought has passed. The limitation period which run from the date on which the contract was broken is 6 years for breach of a simple contract made either orally or in writing. And he adds that the fact that the relevant limitation period has expired does not prevent a claim from being raised. Rather it offers the opportunity to say in defence that the claim should not succeed because it has been brought out of time.
3.9.3. When does time start to run against me in tort?
In Malaysia, as stated by Norchaya (2003) the limitation period for a plaintiff who is suing in tort is six years, as provided in s 6(1)(a) of the limitation Act 1953. 46
Nathan (1998) supported that in a case involving negligence the cause of action arises when a person suffers loss as result of the negligence. Time starts to run from the date when the loss is suffered. In Bank Bumiputera Malaysia Bhd v Tetuan Wan Mariam Hamzah & Shaik & Lain-lain37 the court held that the plaintiff’s cause of action was the defendant’s negligence on 30 August 1984 and that plaintiff knew of the negligent on 18 April 1986 at the very latest. Therefore the course of action arose on 18 April 1986 at the very latest and that the notice to begin the action dated 4 August 1992 had exceeded the six-year limitation period as prescribed in s 6(1)(a) of the limitation Act 1953. If the claim is not brought by the limitation period, the claimant will no longer be entitled to pursue his claim in any court or tribunal and the claim is said to be time-barred (or statute-barred). Similar indicated by Monica (2005) that the limitation of an action can therefore be a useful defence (commonly known as the defence of limitation) to claim for defects.
However, according Cama (2004), damage to a building may not be apparent until some time after the date on which the duty of skill and care was broken. In other words, the damage is latent rather than patent. Whereas, in English provision, as stated by Davies (1989), in a tortious action for negligence time does not start to run against contractor until some damage has occurred. The basic limitation period is 6 years from the date of negligence and the limitation period for latent damage, as set out in the Latent Damage Act 1986, is 3 years from the date of knowledge of certain material facts, namely: a. The material facts of the damage which is sufficiently serious to justify bringing an action; b. That the damage was caused by an act or omission alleged to constitute negligence; c. The identity of the defendant.
37
[1994] 1 MLJ 124
47
And he adds that such knowledge may have been obtained in a number of ways, for example: a. From facts which have been observed or ascertained by the plaintiff; b. From facts ascertainable by him with the help of appropriate expert advice.
This is subject to a long-stop limitation period of 15 years from the breach of the duty of skill and care. It bars a right of action accruing if damage to a building appears after 15 years (Davies, 1989). For an illustration of the operation of this long-stop provision, see Diagram 3.2.
James (1994) supported that the issue of limitation periods is of particular importance in the area of Construction Law. Many defects in buildings are latent, i.e. they are not immediately apparent or discoverable and may not manifest themselves until many years after the buildings have been completed. Damage to property is concerned, the leading case is Pirelli General Cable Works Ltd v Oscar Faber & Partners38, where claims for cracks at the top of a chimney which were not discovered until limitation ran out and nor were they reasonably discoverable, were held to be statute barred. This led to the Latent Damage Act [1986] in England, which provides that there is a alternative period of there years after the Plaintiff either knew or reasonably could have known about the damage, subject to a ‘long stop’ of 15 years from the damage occurred, for the plaintiff to bring his claim without being statute barred. In Malaysia provision, as highlighted by Rajendra Navaratnam (2004) limitation for negligence begins to run when damage occurs, if the damage is not discovered until after limitation runs out, the claim is statute barred. And he adds that Malaysia has no such legislation and Pirelli remains the position in respect of Latent Damage.
38
[1983] 2 AC 1
48
K1
EXP 2 3 years
K2
EXP 3 3 years
6 years
Date of accrual of action
EXP 1
15th year
The plaintiff will generally be able to bring his claim for defects any time before EXP 1. After EXP 1, he will not be able to pursue his claim unless the defect is latent. Then, assuming that the defect is discoverable on K 1, then his claim will not be statute-barred until EXP 2. However, if the defect is only discovered on K 2, then his claim must be brought before the 15th year. After the 15th years, his claim is absolutely barred. This is notwithstanding that the three years period on EXP 3. Diagram 3.2.: Illustration of the operation for long stop provision (Monica, 2005)
3.9.4. If the ownership of a building changes, is the limitation period affected?
As Stated by Davies (1989), a limitation period of 3 years runs from the earliest date on which the new owner had both the right and the knowledge required to bring an action, that is knowledge of such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify commencing proceedings. If the previous owner of the property knew, or ought to have known, of the damage, then the limitation period begins to run from that date. It does not begin to run anew from the time the new owner first acquired his interest.
49
3.10.
When does the cause of action occur?
According Davies (1989), time starts running against the person who has suffered loss, namely the plaintiff, on the day on which the cause of action arose, that day is excluded from calculating the precise length of the limitation period. An action may also be started, for example, by an originating summons. Whereas a writ is the normal mode of starting an action where damages or specific performance are claimed, an originating summons may be used where is no dispute of fact and there is no relief claimed e.g. the only issue between the two parties is the meaning of a contract clause.
Refer table 3.1 as highlighted by Davies (1989) in English
provision.
50
Latent Damages Act 1986, Section 14(a)
Limitation Act 1980, section 11
Limitation Act 1980, section 2
Limitation Act 1980, section 5
Latent Damages Act 1986, Section 14(b) Limitation Act 1980
Latent damage
Personal injury
Tort
Contract
Latent damage
Date of alleged breach of duty
Date of the breach complained of
a) If actionable per se, e.g. trespass, libel; date of commission of tort b) If actionable only on proof of damage, e.g. nuisance; date damage occurred
Date of cause of action or knowledge
Date of knowledge of material facts
Time starts from:
Table 3.1: Limitation period (Davies, 1989)
Statute
Course of action 1
2
3
4
5
6
7
Years (Limitation Period) 8
9
51
10 11 12 13 14 15
CHAPTER 4
DATA ANALYSIS
In this chapter, the findings of the study will be presented, where they will be divided into three sections: A) Results from the judicial decision of defective work where cases are concerning contractor and third party, B) four-stage test, and C) Observation.
In section A, a detailed list of the judicial decisions of defective work cases in chronological order as position in England, New Zealand, Australia, Canada, Singapore and Malaysia will be classify into two categories of actionable harm arising from defective works, namely: a. Injury to person or physical damage to property, and b. No physical damage but sustained the loss.
In section B, base on the data analysis, they will be use the four-stage test in order to look into the circumstances in which that the contractor is liable or not liable to third party for defective works. These tests will be supported by the related cases
focusing in those judicial decisions as mentions and relevant statutory. The four-stage tests used are: a)
Type of harms suffered
b)
Sufficient relationship of proximity
c)
Degree of Care, and
d)
Limitation of action
In section C, the finding of the circumstances that the contractor is liable and not liable to third party for defective works, the next important thing the observations what is the contractor duty to third party.
4.1. SECTION A: Result from the judgments in the matter of defective works (cases concerning contractor and third party)
After the analysis of the cases from the judicial decision in relation to defective works as position in England and New Zealand under the personal injury or physical damage to property had been completed, the results were transcribed and compiled into the following table (Table 4.1). While, the table (Table 4.2) is the analysis of the cases under no physical damage but sustained the loss as position in England, Australia, Canada, New Zealand, Singapore and Malaysia. The cases represent the harms suffered and the court’s judgment for all selected cases.
53
CHRONOLOGICAL ORDER A) INJURY TO PERSONS / PHYSICAL DAMAGE TO OTHER PROPERTY
Bowen v Paramount Builders, 1 NZLR 394
3
1977
1972
Court of Appeal
A builder constructing a permanent building. He was negligently. Negligent contractor already sued in contract by the first purchaser, who then fails to use the damages to do repairs, subsequent owner sued a second time to contractor in tort cause a building defects.
Court of The building foundations were Appeal unsuitable and inadequate. The plaintiff was the second purchaser of the house sued both the contractor for the cost of repair and diminution in the value of the house.
Physical damage recoverable. The contractor owed a duty of care to subsequent purchaser to ensure that the building was safe for occupation and use. Also, in his judgment, emphasized that the subject damage should be characterized as ‘physical’ and not ‘economic loss’.
Physical damage recoverable. Held that the contractors owed a duty of care and he was liable for damage caused by the negligent work or by hidden defects negligently created. ‘A builder constructing a permanent building ought reasonably to have in contemplation those who will make subsequent use of it, including, person who may purchase the place from time to time’. TABLE 4.1 : RESULTS FROM THE JUDICIAL DECISION OF DEFECTIVE WORK (Cases Concerning Contractor And Buyer) No Name of cases Year Court Harm Decision 4 Anns v Merton 1978 House The floors started to slope and as Damage to other property recoverable. London Borough, of Lords result, doors could not be closed The defendant was liable for the cost of AC 728 which were caused due to inadequate making the building safe and they were answerable in tort for all defects, but only foundation. The plaintiffs sued the for 'present or imminent' danger to the contractors for the cost of health and safety of the occupiers or others. remedying the defects. A duty of care to subsequent owner owed by one who participated in the design or construction of a building. The duty of care could result in liability for damage to the building itself.
Dutton v Bognor Regis Urban District Council, 1 QB 373
2
No Name of cases 1 Sharp v E.T. Sweeting & Son Ltd, 1 WLR 665
TABLE 4.1 : RESULTS FROM THE JUDICIAL DECISION OF DEFECTIVE WORK (Cases Concerning Contractor And Buyer) Year Court Harm Decision 1963 High The defendant built a house and the Injury to person recoverable. The Court plaintiffs went into possession as contractor was liable to the plaintiff who first tenant. The plaintiff went was injured by a failing concrete canopy. outside and the concrete canopy fell Laid down in Donoghue v Stenvenson on her, causing injury. The cause of principle. its fall was the faulty and negligent reinforcement by the defendant builders of the concrete.
- Overruled by D&F Estates and Murphy 55
Overruled - The decision was foreshadowed in Sharpe v Sweeting
- Overruled by D&F Estates and Murphy Followed Dutton Case
- The decision was foreshadowed in Sharpe
Overruled
2
No 1
D & F Estates v Church Commissioner For England, AC 177
1989
House of Lords
The plaintiff who was a lessee of a flat in the block discovered that the plaster on the ceiling and wall was loose. He repaired it and sued the original contractor for the cost of repairs and estimated cost of future remedial works
Pure economic loss not recoverable. A purchaser with no remedy against the contractor. House of Lords held that any duty owed by a contractor to a home owner with respect to the quality of the construction must arise, raised on a claim in contract and not in tort. Can't claim under tort because no person or physical damage to property other than building itself. If the defects were discovered before they could cause such injury or damage to other property, then any loss sustained by the
CHRONOLOGICAL ORDER B) COST AND EXPENSE OF RECTIFYING THE DEFECT (PURE ECONOMIC LOSS) TABLE 4.2: RESULTS FROM THE JUDICIAL DECISION OF DEFECTIVE WORK (Cases Concerning Contractor And Buyer) Name of cases Year Court Harm Decision Junior Books v 1983 House of The floors developed serious dust The claim for economic loss succeeded. The Vetechi, AC 520 Lords problems which, thought not contractor's liability to the owner of the necessarily dangerous to the users, building with whom he had no contractual meant that the floor required more relationship with. Ruling that there was the frequent and, hence, more costly requisite degree of proximity between the maintenance. The action was defendants and the plaintiffs. That the plaintiffs brought by the plaintiffs to recover relied on the defendants’ skills and experience in flooring work and the defendants knew of the costs of relaying the floor and this reliance so that the relationship between the various items of economic and financial loss consequential on the parties was as close as it could be short of replacement of the flooring. actual privity of contract.
Table 4.1: Result from the judicial decisions in relation to defective works in category of personal injury or physical damage to property.
56
Overruled Junior Books and Anns
Overruled Overruled D&F Estates and Murphy
Name of cases
Murphy v Brentwood District Council, 2 AII ER 908
Lester v White, 2 NZLR 483
Kerajaan Malaysia v Cheah Foong & Anor, 2 MLJ 439
No
3
4
5
1993
1992
High Court
High Court of New Zealand
The plaintiff alleged that all three defendants had failed to carry out their duties to supervise the construction, causing the plaintiff to
The inadequate foundation resulting in damage to the house. The subsequent owner proceeds against the builders for loss.
Followed decision in Murphy
The court refused to award damages for economic loss on the basis that there was no injury to person or property arising out of the wrongful act of the third defendant. The
57
Refusing to follow D&F Estates and Murphy
Overruled Junior Books and Anns
Overruled
Pure economic loss recoverable. A builder is liable in negligence to subsequent owner of the house or building for damage sustained, notwithstanding that such damage is pure economic loss. Held that subsequent purchasers of adjoining flats were entitled to proceed against the original builders and foundation specialists for loss arising from foundation settlement which could be attributed to negligent design and construction.
TABLE 4.2: RESULTS FROM THE JUDICIAL DECISION OF DEFECTIVE WORK (Cases Concerning Contractor And Buyer) Year Court Harm Decision owner of the building in repairing these defects constitutes only economic loss and is not recoverable. 1990 House of The foundation of a house which Pure economic loss not recoverable. House Lords was found by a subsequent purchaser of Lords held that any duty owed by a to be defective. Damage to the walls contractor to a home owner with respect to the and pipes of the house and the quality of the construction must arise, raised on plaintiffs claimed for the a claim in contract and not in tort. Can't claim under not because no person or physical diminution in value of the property by reason of this damage. damage to property other than building itself. Damage to the building item itself is regarded as pure economic loss is irrecoverable.
Name of cases
Teh Kem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors, 2 MLJ 663
Bryan v Moloney, 1995 128 ALR 163
No
6
7
High Court of Australia
The cracks began to appear in the wall of the house together with extensive damage to the fabric of the house. These defects arose from the inadequacy of the footings which were support the house. The plaintiffs sued the contractors for the cost of remedying the defects.
Economic loss recovered. Remedying damage calculated on the basis of expenditure which would be necessarily incurred in remedying the inadequate footings and damage to the fabric of the house. The court found that there was a relationship of proximity between the contractor and the first owner, giving rise a duty on the part of the contractor to exercise reasonable care in relation to the construction of the building not to cause physical injury or damage to property and also to avoid economic
TABLE 4.2: RESULTS FROM THE JUDICIAL DECISION OF DEFECTIVE WORK (Cases Concerning Contractor And Buyer) Year Court Harm Decision plaintiff could not claim under tort because the suffer substantial losses in repairing the buildings in order to loss suffered by him was a pure economic loss. make them safe for occupation. 1995 High The plaintiff purchasers entered into The court found that the contractor was in Court a sale and purchase agreement with breach of the express provision that the house the first defendant (contractor), to must be constructed in a good workmanlike purchase a house. The house was manner. The contractor admitted the liability to defective in that there were cracks repairs the defects and carried out 'cement on the walls and floors and house grouting' to remedy the problems but this had tilted and was sinking. The proved ineffective. The defence relied on the purchaser then moved out of the 12 month defects liability period under the house. The purchasers claimed agreement. The learn judge rejected the claim against contractor for refund of the against the other parties on the basis that in an action for negligence between partners who purchase price and damages. have no contractual relationship, claim for economic loss would not be allowed.
58
Refusing to follow D&F Estates and Murphy
Relied on D&F Estates
Overruled
Name of cases
Winnipeg Condominium Corporation v Bird Construction, 121 DLR 93
RSP Architects & Engineers v Ocean Front Pte Ltd, 1 SLR 13
No
8
9
1996
1995
Court of Appeal
Supreme Court of Canada
The management corporation of a condominium brought an action against the developers of the condominium, for damages arising out of faulty construction of common property which led to spalling of concrete in the ceiling of the car parks and water ponding. The developer in turn joined the
Serious defects appeared on the exterior claddings. The mortar had broken away, cracks developed in the stonework and large section of the cladding fell off. The plaintiff had the entire cladding removed and replaced at a cost of $1.5 million. It then commenced proceedings against the contractor. Plaintiff was a subsequent owner.
Expressly referred to Junior Books, declined to follow D&F Estates and Murphy
Pure economic loss recoverable. Ruled in favour of the management corporation and held that the management corporation could claim for the cost of repair of the said defects. Court of Appeal concluded that there existed a sufficiently close proximity of relationship ('as close as it could be short of actual privity of contract') between the plaintiff and the defendants as to give rise to a duty of care with
59
Followed Anns position & Refused to followed D&F Estates
Overruled
Recovery allowed against contractors in tort for cost of repairs of dangerous defects (economic loss). Held that where a contractor is negligent in planning or constructing a building and as a result of which, that building is found to contain defects which pose a real danger to the occupants of the building, then 'the reasonable cost of repairing the defects and putting the building back into a non-dangerous state are recoverable in tort by the occupants'. Court view, that the contractor should not be insulated from liability "simply because the current owners of the building acted quickly to alleviate the danger that [the contractor] itself may well have helped to create".
TABLE 4.2: RESULTS FROM THE JUDICIAL DECISION OF DEFECTIVE WORK (Cases Concerning Contractor And Buyer) Year Court Harm Decision loss.
Name of cases
Dr Abdul Hamid Abdul Rashid & Anor v Jurusan Malaysia Consultant (Sued As A Firm) & Ors, 3 MLJ 546
RSP Architects & Engineers (Raglan Squire & Partners FE) v Management Corporation Strata Title Plan, 2 SLR 449
No
10
11
1999
Court of Appeal
The management corporation claimed against the architects for negligence design / supervision of the construction, resulting in the falling of the bricks and brick tiles from the wall. The architect joined as third parties the main contractor for the development and alleging that the walls had failed because of the contractor's poor workmanship.
The expensive rectification work and economic loss recoverable. Ruled in favour of the plaintiffs and dismissed the third party action. Court of Appeal held that there was sufficient proximity of relationship between the plaintiff and defendants. Duty to avoid economic loss would be found to be owed by the contractors and architect to the management corporation.
60
Expressly referred to Junior Books, declined to follow D&F Estates and Murphy
TABLE 4.2: RESULTS FROM THE JUDICIAL DECISION OF DEFECTIVE WORK (Cases Concerning Contractor And Buyer) Year Court Harm Decision Overruled architect, the contractors and the respect to type of loss sustained. engineers as third parties to the action. 1997 High The plaintiff’s bungalow collapsed Pure economic loss recoverable. Held, Court due to landslide and the plaintiffs allowing the claim against the first defendant were forced to evacuate the engineers, the fourth defendant who operated premises. The plaintiffs suffered the first defendant and third defendant losses and damages. The plaintiffs contractor because had breached its duty of care sued, inter alia, the first, towards the plaintiffs in respects negligence, third (contractor) and fourth caused of nuisance to the plaintiffs also liable defendants. under the rule of Rylands v Fletcher. Liability was apportioned 40% against the thrd defendant (contractor) and 60% against the fourth defendant.
Stephen Phoa Cheng Loon & Ors v Highland Properties Sdn. Bhd & Ors, 4 MLJ 200
12
2000
Court of Appeal
The plaintiffs' claim was for damages caused jointly and/or severally by the acts and/or omissions of the defendants, their servants and/or agents in causing and/or contributing to the collapse of Block 1 and thereby forcing the plaintiffs to evacuate and abandon Block 2 and 3.
The appeal court allowed for claims for diminution of value of the blocks of apartments still standing on the basis that it was reasonably foreseeable and not too remote in negligence. The appeal court was justified in not considering the recoverability of economic loss.
Table 4.2: Result from the judicial decisions in relation to defective works n category of pure economic loss
Name of cases
No
TABLE 4.2: RESULTS FROM THE JUDICIAL DECISION OF DEFECTIVE WORK (Cases Concerning Contractor And Buyer) Year Court Harm Decision
61
Overruled
There are three English cases and two cases from New Zealand under first category. Whereas, the selected cases in pure economic loss are as follows; three English cases, three cases each from Australia, Canada and New Zealand, two cases from Singapore and four cases from Malaysia were reported in the judgment. A claim for pure economic loss can be entertained in an action for negligence. Non-allowance of such claim would leave the entire group of subsequent purchasers in this country without relief against errant builders, architects, engineers and related personnel who are found to have erred39.
At a glance, it can be observed that the contractor’s liability in Dutton v Bognor Regis UDC [1972]1 QB 373, Anns v Merton London BC [1978] AC 728 and Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520 is recoverable. However, Brennan J40 urged strongly that the extension beyond Anns should be re-considered. The law should develop categories of negligence, rather than by a massive extension of a prime facie duty of care restrained only by indefinable considerations which ought to negative, or reduce or limit the scope of the duty or the class of person to whom it is owed.
Six years later, the House of Lords was presented with an opportunity to reconsider this principle in the case of D & F Estates Ltd & Ors v Church Commissioners for England & Ors [1989] AC 177 where, contractor’s liability in tort is limited to defects which cause either injury to person or physical damage to property other than building itself. Damage to the building item itself is regarded as pure economic loss and therefore irrecoverable. Both Anns and Dutton were expressly overruled by D & F Estates. The decision in D&F Estates Ltd was followed by House of Lords again in Murphy v Brentwood District Council [1990] 2 All ER 908.
39
Dr Abdul Hamid Abdul Rashid & Anor v Jurusan Malaysia Consultant (Sued As A Firm) & Ors [1997] 3 MLJ 546 40 Sutherland Shire Council v Heyman [1985] 157 CLR 424, High Court of Australia
Furthermore, the retreat from Junior Books and Anns in England culminated with the case of Murphy v Brentwood District Council [1990]41. The House of Lords held, in a decision which reinstates the position as first laid down in Donoghue v Stevenson that liability in tort only arises where injury or damage has been caused to person or other property by the defects in a building which had laid hidden until the happening of the injury or damage. While, if the defects have been discovered before any injury to person or damage to other property had occurred, the expense in remedying the defects was irrecoverable pure economic loss. In such situation, there was no basis for imposing liability for defects on a contractor under tort on the principles of Donoghue v Stevenson42.
Furthermore, Chow (2004) highlighted that the Junior Books decision attracted considerable criticism from academic writers43, while subsequent cases in the courts in England44 and South Africa45 have expressly decided against its application. Among the English cases which held that the case should not be followed was the House of Lords decision in D&F Estates v Church Commissioners [1989].
As stated by Chow (2004), in Malaysia, the recovery of economic loss was raised in the landmark case arising from the Highland Tower disaster, Steven Phoa Cheng Loon v Highland Properties Sdn Bhd (2000)46. The judgment in the Highland Tower, the Malaysian Court of Appeal upheld the finding of liability, but the court took the view that they could not decide on matters of policy and thus, did not consider the dichotomy between the position taken in the English decisions and that taken by the decisions in the other Commonwealth jurisdictions. The appeal court allowed for claims for diminution
41
[1990] 2 All ER 908 [1932] AC 562 43 Duncan Wallace, Construction Contracts: Principles and Policies in Tort and Contract (London: Sweet & Maxwell 1986) 44 Muirhead v Industrial Tank Ltd [1986] QB 507 (CA) 45 Lilliecrap & Wassenaer v Pilkington [1985] 1 SA 475 46 [2000] 4 MLJ 200 42
63
of value of the blocks of apartments still standing on the basis that it was reasonably foreseeable and not too remote in negligence. Chow (2004) noted that the position in Malaysia is still somewhat uncertain, particularly given that the case was also decided with reference to the defendants’ liability for nuisance.
In this section, it is clearly that the contractor can be liable or not liable to third party for defective works. However, as the above case present, Junior Books, Dutton and Anns are not still good law today because of doubted the wisdom the position in these cases, and overruled by D&F Estates Ltd and Murphy, where base on the Donoghue v Stevenson principle.
In order to determine in what circumstance that the contractor liable or not liable under tortious liability to third party for defective works, will be discuss it further in Section B.
64
4.2. SECTION B : Four-stage test
It is clear indicate that the third party may suffer loss and damage cause of injury or physical damage to property arising from the building defects, as discuss in Section A, and the contractor also liable to third party, although there are no privity contracts between them. Base on the those data analysis, in this section apply the four-stage test to determine in what circumstances that the contractor is liable or not liable to third party for defective works.
4.2.1. First stage: Type of harms suffered
In first stage, the question is what kind of loss and damage that the contractor is liable under the two categories of actionable harm arising from defective works, namely, injury to person or physical damage to other property, and pure economic loss.
The distinction between that kind of economic of loss and ordinary physical damage to property is an essentially technical one. Indeed, the economic loss sustained by the owner of a house by reason of diminution in value when the inadequacy of the footings first becomes manifest by consequent damage to the fabric of the house is, at least arguably, less remote and more readily foreseeable than ordinary physical damage to other property of the owner which might be caused by an actual collapse of part of the house as a result of the inadequacy of those footings.47
47
Bryan v Maloney [1995] 128 ALR 163, High Court of Australia
65
4.2.1.1. Injury to person or physical damage to property
As regards the first category of loss and damage, there is generally no problem in pursuing such claim as it is well-established law that a duty of care will arise in respect of such loss and damage. Whenever there damage is suffered there is an inclination to look to the law for redress. This redress may take many forms which include monetary compensation (damages) for the injury suffered. This fact strongly emphasises the function under Law of tort.
It is clearly that the tort of negligence providing
compensation to those suffering injury as a result of carelessness of others.
The question for what kind of loss and damage that the contractors liable under this category are:
a. Damage only to the building itself The House of Lords affirmed that the usual damages for personal injury and damage to property are recoverable so long as the general principles relating to causation are satisfied. In addition to these traditional categories of damages, the recovery for damage caused to the building itself. It is supported by case Dutton v Bognor Regis48 and Anns v Merton London Borough Council49, where the plaintiff sued to contractor because the floors started to slope caused due foundation were unsuitable and inadequate foundation.
48 49
[1972] 1 QB 373 [1978] AC 728
66
As stated by Lord Wilberforce, that the contractor owed a duty of care to subsequent purchaser to ensure that the building was safe for occupation and use, and owed a duty of care could result in liability for damage to the building itself. According by Lord Wilberforce in Anns v Merton London Borough Council50, stated:
The damages recoverable include all those which foreseeably arise from the breach of the duty of care. In my opinion, they may also include damage to the dwelling house itself; for the whole purpose of the bye-laws in requiring foundations to be of a certain standard is to prevent damage arising from the weakness of the foundations which is certain to endanger the health or safety of occupants.
Lord Denning MR on Dutton’s case, his judgment, emphasized that the subject damage should be characterized as ‘physical’ and not ‘economic loss’: The damage done here was not solely economic loss. It was physical damage to the house. If [defence counsel’s] submission were right, it would mean that if the inspector negligently passes the house as properly built and it collapses and injuries a person, the contractor are liable: but if the owner discovers the defect in time to repair it – and he does repair it – the contractor are not liable. That is an impossible distinction.51
Dutton was followed in the leading New Zealand case Bowen v Paramount Builders (1977)52 where the Court regarded it as plain upon the principles of the English authorities that a contractor was liable for personal injury or damage to other property caused by hidden defects negligently created.
50
[1978] AC 728 [1972] 1 QB 373 at 396 (CA) 52 [1977) 1 NZLR 394 51
67
The position in common law up to the decision in Anns v Merton London Borough Council53, is that liability in negligence for damage and loss arising from building defects have extended beyond the limits previously laid down in Donoghue decision in two important ways. First, the recovery of damage is no longer limited to just personal injury or damage inflicted on other property by reason of the defective article. It suffices that there were defects in the building itself. Secondly, damages may be recovered even where the damage to the building may not have actually materialized. A cause of action may be founded so long as the subject defects threatened to cause “present or imminent danger” to the health or safety of persons occupying it.
b. Where the defects in a building causes death, personal injury or damage to property other than the defective building itself, the contractor will be liable under the Donoghue v Stevenson principle.
Lord Denning classifies Mrs Dutton’s loss as a physical damage to the house and in Anns, Lord Wilberforce said that the relevant damage was physical, though subject to the qualification that what is recoverable is amount of expenditure necessary to restore the dwelling to a condition in which longer a danger to the health or safety of the occupants.
The principles: laid down in Donoghue v Stevenson to the construction of building would find the existence of a duty of care on the part of those who have been involved in the design and construction of the building to ensure that the building does not, during its intended life, causes physical damage to person or other property, other than the building itself. Thus, contractors are clearly liable for injury to persons or damage to property arising from negligence in their operations. Moreover, since the 53
[1978] AC 728
68
purpose of the Public Health Act 1936 was to secure the health and safety of owners and occupiers of buildings, it must be in the reasonable contemplation of both the contractor and local authority that failure to comply with the bye-laws relating to the construction of foundations may lead to hidden defects and subsequent damage.
Lord Denning in Dutton on this point: contractor owed a duty of care in all cases, whether he owned of land or not. The Lord Wilberforce is generally regarded as having held that a contractor could be civilly liable for breach of the local bye-laws or building regulations in this short passage: ‘…since it is duty of the builder (owner or not) to comply with the byelaws, I would be of opinion that an action could be brought against him, in effect, for breach or statutory duty by any person for whose benefit or protection the byelaw was made’54
4.2.1.2. No physical damage but sustained the loss.
Pure economic loss is different from the first category, where the plaintiff has suffered no damage to his person or property but has only sustained economic loss. As regards the second category of loss and damage, the law has always been quite controversial as to whether such claims are recoverable in tort. Pure “economic loss”, that is, financial loss did not flow directly from such damage, was simple too remote and should not be recoverable.
54
[1978] AC 728
69
However, the position under English law that economic loss can only recovered where it is consequential upon physical injury or damage was considered again in the early eighties by the House of Lords in the case of Junior Books Ltd v Veitchi Co Ltd (1983)55. The House of Lords held that, by a majority, that the defendants were liable, ruling that there was the requisite degree of proximity between the defendants and the plaintiffs on account of a number of factors. One of these factors was the finding that the plaintiffs relied on the defendants’ skills and experience in flooring work and the defendants knew of this reliance so that the relationship between the parties was as close as it could be short of actual privity of contract56.
Thus, the question for, what kind of loss and damage that the contractor is liable under this category are:
a. Recovery of the costs of rectification of defects, which are discovered before physical damage occurs or defective building collapsed or to avoid the danger to the occupants of the building. The cost of repair or diminution in value of the building is classified as ‘pure economic loss’. This kind of loss and damage was succeeded in case, Winnipeg Condominium Corporation v Bird Construction57 where serious defects appeared on the exterior claddings. The mortar had broken away, cracks developed in the stonework and large section of the cladding fell off. The plaintiff became subsequent owner and had to repair, removed and replaced of the cladding at a cost of $1.5 million. commenced proceedings against the contractor.
It then
Plaintiff was a subsequent owner.
Recovery allowed against contractors in tort for cost of repairs of dangerous defects (economic loss). 55
[1983] AC 520 ; [1982] 3 WLR 477 Ibid 57 [1995] 121 DLR (4th) 193 56
70
Held that where a contractor is negligent in planning or constructing a building and as a result of which, that building is found to contain defects which pose a real danger to the occupants of the building, then 'the reasonable cost of repairing the defects and putting the building back into a non-dangerous state are recoverable in tort by the occupants'. Court view, that the contractor should not be insulated from liability "simply because the current owners of the building acted quickly to alleviate the danger that [the contractor] itself may well have helped to create"58.
b. Defect in quality
Ter Kah Leng (1989) defined defects in quality is may render the product valueless or useless. Judicial opinion, apart from Junior Books, seems against the recovery of pure economic loss arising from a mere defect in quality which neither damages the product itself, nor poses a threat to persons or other property. Lord Keith in Junior Books v Veitchi59 preferred to base his decision on a narrower ground, namely, that the duty of care not only applied for foreseeable physical damage but also to foreseeable economic loss. His lordship envisaged that the supply of defective products could give rise to liability in negligence in certain circumstances (as when expenditure is incurred in averting danger to person or property) but not because the product was defective, valueless, useless or required replacement.
However, it was the dicta of Lord Brandon which found favour with the House of Lords in D&F Estates. In his dissenting judgment in Junior Books, Lord Brandon explained why there should not be a duty to avoid economic loss arising from defective works.
58 59
[1995] 121 DLR (4th) 193 [1982] 3 AII ER 201
71
c. Recovery of the cost in respects negligence and cause of nuisance to plaintiff under rule of Rylands v Flecther
Alternative remedies in tort for plaintiffs are in nuisance and/or Rylands v Flecther against contractor of the defective premises, if any occurrences on those defective premises arising out of defective construction, such as escape of water, floods, landslides affect the enjoyment of plaintiffs having exclusive possession of other properties. This included the decision of the Dr Abdul Hamid Abdul Rashid & Anor v Jurusan Malaysia Consultant (Sued As A Firm) & Ors60 the rationale against the award of damages for pure economic loss is fear of creating an extension of liability for ‘an indeterminate amount for an indeterminate time to indeterminate class.’ James Foong J to find for pure economic loss against the contractor because had breached its duty of care towards the plaintiffs in respects negligence, cause of nuisance to plaintiff also liable the rule of Rylands v Flecther .Contactor have unnecessarily allowed infiltration or seepage of water into the ground and/or allowing it to overflow onto neighbouring land, and causing saturation in the soil resulting in landslide which down the plaintiff’s house.
Further, in Malaysia, the recovery of economic loss was raised in the landmark case arising from the Hingland Tower disaster, Stephen Phoa Cheng Loon & Ors v Highland Properties Sdn. Bhd & Ors61. The Court of Appeal allowed for claims for diminution of value of the blocks of apartments still standing on the basis that it was reasonably foreseeable and not too remote in negligence. It is suggested that, on the facts, the appeal court was justified in not considering the recoverability of economic loss. Particularly given that the case was also decided with reference to the defendants’ liability for nuisance.
60 61
[1997] 3 MLJ 546 [2000] 4 MLJ 200
72
While, the question for, what kind of loss and damage that the contractor is not liable under this category is:
a.
The defects have been discovered before any injury to person or damage to property had occurred, the expense in remedying the defects was irrecoverable.
Lord Bridge in D & F Estate v Church Commission (1989)62, ruled that the contractor of a permanent structure is only liable for defects in the structure if the defects caused personal injury or damage to property, other than the structure itself. If the defects were discovered before they could cause such injury or damage to other property, then any loss sustained by the owner of the building in repairing these defects constitutes only economic loss and is not recoverable.
In Murphy v Brentwood District Council63 the House of Lords held that on a proper application of the principle in Donoghue v Stevenson to defective buildings, where the subject defects have been discovered before any injury to person or damage to other property had occurred, the expense in remedying the defects was irrecoverable pure economic loss. The principle in Donoghue v Stevenson to defective buildings: where liability in tort only arises where injury or damage has been caused to person or other property by the defects in a building which had laid hidden until the happening of the injury or damage.
Lord Bridge in D & F Estate Ltd explained that if contractor erects a defective structure which renders it dangerous to person or other property, he is liable for injury to person and damage to property resulting from the defective structure. However, if the
62 63
[1989] AC 177 [1990] 2 AII ER 908
73
defect is apparent before any injury or damage has been caused, the loss sustained by the owner would be purely economic and such loss is recoverable by the owner if they flow from a breach of a relevant contractual duty. They said any defect in the structure is a defect in quality of the whole and that it is quite artificial to treat a defect in an integral structure which weakens the structure as damage to ‘other property’. Thus, cracking in walls and ceiling caused by defective foundations cannot be treated as damage to ‘other property’.
4.2.2. Second stage: Sufficient relationship of proximity
In second stage, where there is no privity of contract between the third party and contractor, who caused that loss.
The question here, is contractor liable for such
damage, where there is no contractual between the third parties?
In the principle the answer should be that he is (Frank, 1988). A duty would seem to be owed, the future occupiers of a building being a small and definable group in relation to whom the contractor could be said to be in proximity. Also, the duty giving rise to legal liability generally arises when there is a ‘relationship’ between the parties. Negligence occurs in a failure to care against risk of foreseeable injury.
This is
supported by leading case, Donoghue v Stevenson (1932), in a classic passage of his judgment, Lord Atkin stated the principles in following terms:
The rules is that ‘you are to love your neighbour becomes, in law, you must not injure your neighbour’; who is my neighbour? You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seemed
74
to be - persons who are so closely and directly affected by my act that I ought reasonably to have them in my contemplation as being so effected when I am directing my mind to the acts or omissions which are called in question.
It is clear that the case on Donoghue v Stevenson in was necessary for the plaintiff use negligence because the rules of privity of contract (i.e.
no payment
amounting to no contract between the plaintiff consumer and the defendant manufacturer) stopped her from resorting to contractual remedies. Her friend who purchased the ginger beer had no useful contractual remedies, not having suffered substantial damage. A manufacturer would be liable to the ultimate consumer of his products if the consumer suffered injury as a result of defects in the product caused by improper manufacturer; therefore a manufacture owes a duty of reasonable care towards the consumers of his products.
These principles of Donoghue v Stevenson can be applied in relationship of contractor and the third party, where the contractor of a house may be liable to the ultimate purchaser or anyone concerned with a defect which materializes later in a building may be liable to the person who ultimately suffers damage as a result of the defects. As stated by Siddharaj (1996) usually, most people’s houses have not been purchased directly from the contractor. Complex chains of relations might be involved such as: Contractors > First Buyer > Second Buyer > Lessee In comparison the relationships in Donoghue v Stevenson: Manufacturer > Retailer > Purchaser > Ultimate consumer
75
The principles also would find the existence of a duty of care on the part of those who have been involved in construction of the building to ensure that the building does not, during its intended life, causes physical damage to person or other property, other than the building itself. Thus, contractors are clearly liable for injury to persons or damage to property arising from negligence in their operations (Siddharaj, 1996).
In Junior Books v Vetechi64, the House of Lords dealt directly with the contractor's liability to the owner of the building with whom he had no contractual relationship with. In this case, court favours to the plaintiffs. The defendants were liable, ruling that there was the requisite degree of proximity between the defendants and the plaintiffs on account of a number of factors. One of these factors was the finding that the plaintiffs relied on the defendants’ skills and experience in flooring work and the defendants knew of this reliance so that the relationship between the parties was as close as it could be short of actual privity of contract.
Similarly indicate in Bryan v Moloney65 , where the first owner sued the contractors for the cost of remedying the defects and the cost of claim is succeeded. The court found that there was a relationship of proximity between the contractor and the first owner, giving rise a duty on the part of the contractor to exercise reasonable care in relation to the construction of the building not to cause physical injury or damage to property and also to avoid economic loss. In the circumstances, the learned judges held that the relationship between contractor and subsequent owner as regard the particular kind of economic loss should be accepted as possessing a comparable degree of proximity to that possessed by the relationship between the contractor and the first owner.
64 65
[1982] 3 AII ER 201 [1995] 128 ALR 163
76
Also, similar situation in case RSP Architects & Engineers v Ocean Front Pte Ltd & Anor Appeal ("Ocean Front")66 and RSP Architects & Engineers (Raglan Squire & Partners FE) v Management Corporation Strata Title Plan ("Eastern Lagoon")67 where it preferred the decisions of the High Court of Australia in Bryan v Moloney68 and the Supreme Court of Canada in Winnipeg Condominium Corporation v Bird Construction69 followed and adopted the approach of Lord Roskill in Junior Books v Vetechi70, the pure economic loss recoverable. The Court of Appeal concluded that there existed a sufficiently close proximity of relationship ('as close as it could be short of actual privity of contract') between the plaintiff and the defendants as to give rise to a duty of care with respect to type of loss sustained.
It is clear that, there existed a sufficiently close proximity of relationship between the plaintiff and the defendants, giving arise to duty on the part of the contractor to exercise reasonable care in relation to construction of the building not to cause physical injury or damage to property and also to avoid mere economic loss. Thus, if contractor breach a duty to take care, then he is negligent and liable under law of tort.
66
[1996] 1 SLR 751 [1999] 2 SLR 499 68 [1995] 128 ALR 163 69 [1995] 121 DLR (4th) 193And 70 [1982] 3 AII ER 201 67
77
4.2.3. Third stage: Degree of Care
Thirdly, if the second question is answered in the affirmative, so, the next question namely, is contractor really liable to third party in terms of defects? It is necessary to be test the degree of care by contractor when he performs his works. Here, doubtful issues arise whether he performed as a workman like manner?
Normally, the contractor’s obligation begins with the obligation to construct the works in accordance with the contract documents within the required time, and these documents also lay down the conditions with which the contractor is to compliant. It clear indicate under Clause 1.171 of the PAM 1998 Form, where the contractor is obligated to provide materials, goods and standards of workmanship of the quality and standard in every respect to the reasonable satisfaction of the architect. This is the essence of the contract as it defines the contractor’s dual obligation to carry out and complete the works as designed on behalf of the employer. The common law has always implied a number of terms into a contract for building works: a. That the contractor will carry out the work in a good and workmanlike manner; b. That any materials supplied by him will be of good quality and reasonable fit for their purpose; and c. That in the case of a dwelling house, it will be fit for human habitation.
The contractor must exercise as a reasonable man, which is reasonable in the circumstances of the particular case. That a duty of care exists in normal circumstances whereby if a contractor does not take usual degree of precaution another person or his
71
Malaysian Standard Form of Building Contract (the PAM 1998 Form)
78
property may be injured or damages.
Clear indicated in Blyth v Birmingham
Waterworks Co72: ‘Negligent is the omission to do something which a reasonable man, guided upon those consideration which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do.’
In Hancockand other v V.W. Brazier (Anerley) Ltd (1966), Lord Denning said that when a purchaser buys a dwelling from a builder who contracts to build it there are three implied obligation on the builder: ‘..that the builder will do his work in a good and workmanlike manner; that he will supply good and proper materials; that the dwelling will be reasonably fit for human habitation’.
Supported by section 1 of the Defective Premises Act (1972), based on the common law contractual duties of the builder, and imposes a duty on: ‘….a person who is taking on work for or in connection with the provision of a dwelling, owed a duty to see that the work which he takes on is done in a workmanlike manner or as the case may be, in professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed’.
This means that a contractor will discharge his duty under section 1(1) if he is instructed to build according to particular specification and follows such instruction. The contractor must exercise reasonable skill and care. He must perform their job with their knowledge and good performance. The common ground that the standard of skill 72
[1856] 11 Ex. 781, 784
79
and care must be determined by reference to members of profession concerned, rather than the man on the Clapham omnibus. As stated by Justice McNair in Bolam v Friern Hospital Management Committee:73
“Where you get a situation which involves the use of special skill or competence, then the test as to whether there has been negligence or not is not the test of the man on top of Clapham omnibus, because he has not got the special skill. He is ordinary man. The test is standard of the ordinarily skilled man exercising and professing to have that special skill or expertise”.
The level of the reasonable man’s conduct is not at some impossibly high level. He is the ‘man in the street’ or ‘Mr. Average’. The standard of the reasonable man, he is ‘free from the both over-apprehension and from over-confidence’. The standard is not a standard of perfection (Siddharaj, 1996).
It is clear indicated, that the contractor involves the use some skill or competence then the test as to whether there has been negligence or not is not the test of the man on the top of a Clapham omnibus, because he has not got this special skill. The test is the standard of the ordinary skilled man exercising and professing to have special skill. A man need not possess the highest expert skill: it is well established law that it is sufficient if he exercises the ordinary skill of on ordinary competent man exercising that particular art.
There may be one or more perfectly proper standards: and if the
contractor conform with one of those proper standards and he was well constructed as a workmanlike manner so, then he is not negligent.
73
[1957] 1 W.L.R. 582; [1957] 2 AII E.R. 118
80
4.2.4. Fourth stage: Limitation of action
Lastly, if the second and third questions is answered in the affirmative, so, the last question to determine whether the contractor is liable or not liable to third party for defective works is depend on the limitation period for the claim.
The subject of limitation deals with the time periods within which a plaintiff (buyer) must commence his action. A plaintiff who fails to initiate proceedings within the applicable period will be barred from obtaining any remedy. In Malaysia, the general limitation period for plaintiff who is suing in contract and tort is six years. This is provided for in s 6(1) (a) of the limitation Act 195374. Normally, the cause of action in contract accrues on the date when the breach of the contract occurs whereas, in tort, the cause an action accrues only on the date when the damage occurs (Monica, 2004). Limitation for negligence begins to run when damage occurs. If the damage is not discovered until after limitation runs out, the claim is statute barred.
Damage to
property is concerned in the leading case is Pirelli General Cable Works Ltd v Oscar Faber & Partners75, where the plaintiff claimed against the engineers for negligent advice given in relation to the design of a chimney which cracked in April 1970 but discovered only in November 1977.
In October 1978 the plaintiffs issued a writ
claiming damages for negligence by the defendants. See illustration (Diagram 4.1).
74 75
Act 359. [1983] 1 AII ER 65
81
> 9 years (Claim in tort) Chimney built
Cracks appeared
Discovered cracks
Suit filed
Nov 1977
Oct 1978
> 8 years
July 1969
April 1970
6 years
6 years Claim in contract time-barred July 1975
Claim in tort time-barred April 1976
Diagram 4.1: Illustration of the Pirelli case
In Pirelli case, the plaintiff is correctly brought an action against defendant under tort because cause of action in tort at the date when physical damage occurred to the building is more then six years, namely nine years. Since, that the date of action was more than six years from the damage is occurs, the claim in tort was statute-barred. Thus, in this case the claim was disallowed. The House of Lords held that the date of accrual of a cause of action in tort for damage caused by the negligent design or construction of a building was the date when the damage came into existence, and not the date when the damage was discovered or should with reasonable diligence have been discovered. The plaintiffs' cause of action accrued not later than April 1970. Since that date was more than six years before the issue of the writ, the claim was statute-barred. This led to the Latent Damage Act [1986] in England, which provides that there is a alternative period of there years after the Plaintiff either knew or reasonably could have 82
known about the damage, subject to a ‘long stop’ of 15 years from the damage occurred, for the plaintiff to bring his claim without being statute barred. However, in Malaysia they have no such legislation and Pirelli remains the position in respect of Latent Damage.
However, in Kettman v Hansel Properties Ltd76 where, the foundations were laid between 1973 and in 1976 cracks appeared in the walls. In 1980 the plaintiffs issued a writ against the builders claiming damages for negligence. The plaintiff claims under tort because the date when physical damage occurred to the building is more then six years, namely seven years. Since, that the date of action was less than six years from the damage is occurs, the claim in tort was not statute-barred. Thus, in this case the claim was succeeded.
The Court of Appeal held that the plaintiffs’ claims against the
defendant were not statute-barred. The plaintiffs’ cause an action accrued when the physical damage to their houses occurred, i.e. when the cracks appeared in the walls in 1976. See illustration (Diagram 4.2).
76
[1985] 1 AII ER 352
83
7 years (Claim in tort) Foundation laid
Cracks appeared
Suit filed 4 years
1973
1976
1980
6 years 6 years
Claim in contract time-barred July 1979
Claim in tort time-barred April 1982
Diagram 4.2: Illustration of the Kettman’s case
4.2.5. Diagramatic of the four-stage test
From the above tests, it is clearer when see through diagramatically. The following diagrams present the every each of stage tests.
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Construction Defects
Is the damage to property?
NO
YES
Has the defects resulted in damage?
YES
Damages are not recoverable
YES
NO
Is this damage to “other property”?
Damages are not recoverable NO
Damages are recoverable
YES
Is the damage inflicted on “the very thing” itself?
Diagram 4.3: First stage-test - Analysis of Liability in respect of damage to property (Category A)
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Construction Defects Try process in Diagram 4.3
NO
Is it pure Economic Loss? YES
NO
Sustained loss cost of repair, replacement or diminution value
Damages are recoverable
Damages are not recoverable Favours of the contractor No injury to person and damage to property Cases: - D & F Estates v Church Commissioner For England [1989] 2 AII ER 992 - Murphy v Brentwood District Council [1990] 2 AII ER 908 - Kerajaan Malaysia v Cheah Foong & Anor [1993] 2 MLJ 439
No contractual relationship. Case: - Teh Kem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors [1995] 2 MLJ 663
YES
Favours of the third party
To avert a present or imminent danger to health and safety Cases: - Anns v Merton London Borough [1972] 1 AII ER 462 - Winnipeg Condominium Corporation v Bird Construction [1995] 121 DLR (4th) 193
Defect in Quality Case: - Junior Books v Vetechi [1982] 3 AII ER 201
In respects negligence, nuisance and/Rylands v Fletcher Case: - Dr Abdul Hamid Abdul Rashid & Anor v Jurusan Malaysia Consultant (Sued as a Firm) & Ors [1997] 3 MLJ 546 - Stephen Phoa Cheng Loon & Ors v Highland Properties Sdn. Bhd & Ors [2000] 4 MLJ 200
Sufficient proximity of relationship Refer Diagram 4.5.
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Diagram 4.4: First stage-test - Analysis of Liability in respect of pure economic loss (Category B) Construction Defects
PROXIMITY TEST (Because no privity of contract between contractor and buyer) Neighborhood principle:
Is the relationship as close as it can be short of contract?
The relationships in Donoghue v Stevenson: Manufacturer > Retailer > Purchaser > Ultimate consumer
YES Contractor owed a duty of care: a) not to cause physical injury or damage to property and also b) to avoid mere economic loss
The relationships of contractor with buyer Contractors > First Buyer > Second Buyer > Lessee Cases: - Junior Books v Vetechi [1982] - Bryan v Moloney [1995] - RSP Architects & Engineers v Management Corporation Strata Title Plan [1999] ("Eastern Lagoon") - RSP Architects & Engineers v Ocean Front Pte Ltd [1996 ("Ocean Front")
Breach a duty NO Contractor not liable
YES Contractor liable
BOTH
Economic Loss Injury to person or Physical damage to property
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Diagram 4.5: Second stage-test - Analysis of Liability in respect of proximity relationship
Construction Defects
DEGREE OF CARE Whether contractor performed as a workman like manner?
Contractor’s obligation: Express terms: PAM 98 1 (1) Implied terms: a. Carry out the work in a good and workmanlike manner; b. Material supplied (good quality and reasonable fit for their purpose) c. That in the case of a dwelling house, it will be fit for human habitation.
Standard of the ordinary skilled man exercising
The standard of level for standard of work (Mr. Average)
Highest expert skill NO
Contractor is negligent
He was well constructed as a workmanlike YES
Contractor is not negligent
Principle: whether there has been negligence or not is not the test of the man on top of Clapham omnibus, because he has not got the special skill. He is ordinary man. The test is standard of the ordinarily skilled man exercising and professing to have that special skill or expertise. (Bolam v Friern Hospital Management Committee)
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Diagram 4.6: Third stage-test - Analysis of Liability in respect of contractor’s duty of care Construction Defects
LIMITATION OF ACTION Period of limitation expire?
Damage appeared Buyer (Suit field)
Date of action not more than 6 years
Date of action was more than 6 years
Claim allowed
Claim disallowed. The claim was statute-barred.
Diagram 4.7: Fourth stage-test - Analysis of Liability in respect of limitation of action
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4.3. SECTION C: Observations
As the above case present, there are seventeen of cases, where Nine English cases, three cases from New Zealand, two cases each from Australia and Canada, two cases from Singapore and four cases from Malaysia were reported in the judgment.
From the above four-stage test used in order to determine that the contractor is liable or not liable to third party, where it is clear that the contractor can be liable although they is no contract between them. In the first-stage test, the types of harms suffered by the plaintiff normally injury to person and physical damage to property or pure economic loss. Pure economic loss, i.e. financial loss which is not directly result of physical loss, which loss may well not be recoverable. Consequential loss, i.e. financial loss which is direct result of physical damage (whether to person or property) is generally recoverable. In this stage the contractor can be liable because of they owed a duty of care to third party, where the third party suffered the loss and damage. The principle of Donoghue v Stevenson is very useful in majority of judicial decisions.
In the second-stage test, where the proximity between a contractor who produced faulty work and the third party is sufficiently close, the duty of care owed by the contractor to the third party extends beyond a duty merely to prevent harm being done by the faulty work and includes a duty to avoid faults being present in the work itself, as that the contractor is liable for the cost of remedying defects in the work or replacing it and for any consequential economic or financial loss, notwithstanding that there is no contractual relationship between the parties.
In this stage also followed the
neigbourhood principle in Donoghue v Stevenson.
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Thirdly, whether contractor performed as a workmanlike manner or not is base on the average of the standard of works. The test is standard of the ordinarily skilled man exercising and professing to have that special skill or expertise. If the contractor conforms to one of those proper standards and he was well constructed as a workmanlike manner so, then he is not negligent, moreover, the contractor must supply good will be reasonable fit for purpose and the dwelling will be reasonably fit for human habitation, is refer the famous cases Bolam v Friern Hospital Management Committee concerning the Clapham omnibus.
Last-stage test is the limitation of action. The subject of limitation deals with the time periods within which a third party must commence his action. A party who fails to initiate proceedings within the applicable period will be barred from obtaining any remedy. If the damage is not discovered until after limitation runs out (more than 6 years from the damage occurs), the claim is statute barred. Damage to property is concerned in the leading case is Pirelli General Cable Works Ltd v Oscar Faber & Partners.
From the above cases, there appear to be several types of cases affecting the sufficiently of proximity relationship between the parties, where the contractor owed a duty of care to third party although they has no contractual between them. It is clearly indicated in the Anns v Merton London Borough Council premise came to be understood principally in these terms: “that liability for defects may be found in negligence so long as there is a relationship of proximity between the wrongdoer and the aggrieved to give rise to a duty of care and there are no considerations which ought to negative or reduce the scope of this duty or the class of persons to whom this duty is owed.”
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However, Brennan J77 urged strongly that the extension beyond Anns should be re-considered.
The law should develop categories of negligence, rather than by a
massive extension of a prime facie duty of care restrained only by indefinable considerations which ought to negative, or reduce or limit the scope of the duty or the class of person to whom it is owed.
An opportunity to re-consider this principle was represented in the case of D & F Estate v Church Commission (1989) where, contractor’s liability in tort is limited to defects which cause either injury to person or physical damage to property other than building itself. Damage to the building item itself is regarded as pure economic loss and therefore irrecoverable. The decision in D&F Estates Ltd was followed by House of Lords again in Murphy v Brentwood District Council78.
A proper application of the principle in Donoghue v Stevenson to defective buildings, liability in tort only arises where injury or damage has been caused to person or other property by the defects in a building which had laid hidden until the happening of the injury or damage. While, if the defects have been discovered before any injury to person or damage to other property had occurred, the expense in remedying the defects was irrecoverable pure economic loss. In such situation, there was no basis for imposing liability for defects on a contractor under tort on the principles of Donoghue v Stevenson79. For these reasons, both Anns and Dutton were expressly overruled.
77
Sutherland Shire Council v Heyman [1985] 157 CLR 424, High Court of Australia [1990] 2 AII ER 908 79 [1932] AC 562 78
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CHAPTER 5
CONCLUSION
The extent of contractor liability is under contractual liability and tortious liability. The liability of the contractor to a subsequent owner of a building, where there is no contractual relationship between the parties and the basis of the contractor’s liability under the common law is the tort of negligence.
The contractor does not escape liability as a result of Muphy, where a contractor can no longer be sued in tort merely for construction a defective structure, unless the defects inherent in the structure inflict either personal injury or damage to some property other than the structure itself. The builder will be liable, it is likely, for personal injury and some contractors seem likely to be unlucky enough to fall within the parameters of the restrictive Junior Books liability for economic loss. Some difficult cases remain to be sorted out on the borderline between these two categories. Thus, the builder faces a considerable risk liability, but this in turn will overlap with, and may be shared by, other members of the building team.
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In relation to the above, the study into the “liability of contractor to third party under tortious liability” established the main findings which respond to the objective of the report as follows:
The main liabilities of contractor to third party under tortious liability are:
i. Duty to avoid threats to health and safety: The decision in Anns, the damages recoverable might include those for damage to the house itself, it is clear that he was referring to damage separate from but caused by the defective foundations. The measure of such damages would be limited to what was necessary to remove the danger to the health or safety of the occupants, which might well include the cost of repairing the initial defects but might equally well be less than that required to repair all the damage. The basis of the duty is that persons should not be placed in a position of danger it is difficult to draw a logical distinction between danger which manifests itself because of physical damage and danger which is discovered fortuitously for example by a survey or inspection. If the house collapses without any warning and injuries nobody any danger inherent in its construction has been removed. It would be very strange result that the owner should have no remedy in such an event but should have a remedy if the danger had manifested itself before collapse.
ii. Duty not to cause injury to person or property.
In Bowen v Paramount
Builders the Court regarded it as plain upon the principle of the English authorities that a builder was liable for personal injury or damage to other property caused by hidden defects negligently created. A duty would seem to be owed, the future occupiers of a building being a small and definable group in relation to whom the builder could be said to be in proximity. The only difficult comes from Murphy: the question of the duty on the local authority. Between contractors’ liability and
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that of local authorities, it would seem likely that if a future court were to hold that local authorities owed no duty in respect of physical injury.
iii. Duty not to cause economic loss. The recovery of the costs of rectification of defects, which are discovered before physical damage occurs. The contractor is regards liability towards a remote purchaser of a building which suffered from defects due to carelessness in construction. Lord Denning MR in Dutton held that a builder owed a duty of care whether he owned the property or not. He rejected the argument that the builder’s liability was limited to those who sustained personal injuries. He also indicated that liability extended to the cost of repair before a defective building collapsed.
The duty is owed both to the person to whose orders the building is provided and to every person who acquires an interest in the building. Plainly the first purchaser is covered by those categories. In other words, the statutory duty extends to both the first purchaser of the dwelling and every subsequent owner. Therefore, contractor’s duty of care is clearly owed to all future owners, all future occupiers and any person who may enter or pass by the building. In Bowen v Paramount Builders Ltd80, the contractor constructing a permanent building ought reasonably to have in contemplation those who may purchase the place from time to time.
The main situation that the contractors liable to third party for defective works are: a. Where the defects in a building causes death or personal injury or damage to property other than the defective building itself, the contractor will be liable under the Donoghue v Stevenson principle.
80
[1977] 1 NZLR 394
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b. Recovery of the costs of rectification of defects, which are discovered before physical damage occurs or defective building collapsed or to avoid the danger to the occupants of the building. c. Recovery of the cost in respects negligence and cause of nuisance to plaintiff under rule of Rylands v Flecther d. Although there is no contractual relationship between the third party and contractor, but the contractor can be liable because if has a sufficiently of proximity, under neigbourhood principle where the contractor owed a duty of care to third party e. If the third party brought an action against the contractor before 6 years after the defect occurs, the claim allowed.
The main situation that the contractors not liable to third party for defective works are: a. If the defect is simply one of quality and does not render the building a danger to the health or safety of its occupants, then such loss is pure economic loss and not recoverable. b. If the defects have been discovered before any injury to person or damage to property had occurred, the expense in remedying the defects was irrecoverable. c. If the loss suffered is connected with physical damage to property belonging to the third party or connected with injury to the person, even the loss is financial it is not pure economic loss and is recoverable.
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d. If a third party fails to initiate proceedings within the applicable period will be barred from obtaining any remedy. If the damage is not discovered until after limitation runs out (more than 6 years from the damage occurs), the claim is statute barred.
Nevertheless, the limit of contractor liability was explained in case D & F Estate v Church Commission (1989)81, where any duty owed by a contractor to a home owner with respect to the quality of the construction must arise, raised on a claim in contract not in tort. The decision in D & F Estate was followed by House of Lords again in Murphy v Brentwood District Council82. In this case that contractor’s liability in tort is limited to defects which cause either injury to person or physical damage to property other than building itself.
Damage to the building item itself is regarded as pure
economic loss and therefore irrecoverable.
81 82
[1989] AC 177 [1990] 2 AII ER 908
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