Negligence and time-bars: confusion reigns

It should be so simple. Tort and limitation are cornerstone issues in litigation. Who can I sue and when can I sue them? Yet the law is strangely unsettled on both. Two recent cases have added to the confusion.

Tort

Who is your neighbour?

It is important to know, because you must not harm your neighbour. More accurately, if you do harm them and you have been negligent, you must compensate them. This, in a nutshell, is the tort of negligence. No contractual relationship is required.

If you cause physical injury or property damage, then pretty much everyone is your neighbour. However, if you cause mere financial (or "economic") loss, as will usually be the case in construction cases, who then is your neighbour?

I have no neighbours

In the beginning, the answer was no-one. You could not sue for economic loss. Hedley Byrne v Heller [1964] AC 464, however, confirmed that you could, provided that there was a 'special relationship' between the adviser and the victim.

In D & F Estates v Church Commissioners [1989] AC 177, the House of Lords held that builders were very unlikely to have 'special relationships'. They could be liable in contract, but probably not in tort.

Samuel Payne v John Setchell Limited [2002] BLR 489, then confirmed that the same applied to architects, engineers and other designers. Except in very unusual circumstances, contracts alone would regulate relationships on a building site.

My neighbour is…

But alas no more. In Mirant Asia Pacific Construction v Ove Arup & Partners International Limited [2004] EWHC 1750, it was alleged that Ove Arup owed duties in tort to both its contractual client, Mirant, and a third party, Sual Construction Corporation.

His Honour Judge Toulmin "respectfully disagreed" with the decision in Payne v Setchell and decided that there was a 'special relationship' between Ove Arup and Mirant, but not between Ove Arup and Sual.

Conclusion: who is your neighbour?

Remember that we are dealing solely with economic loss. In that context, for contractors, D & F Estates will still apply and the answer may be no one. Your duties appear to be limited to those set out in your contract with your client. For designers, the Mirant decision suggests that your client may also be your neighbour and, accordingly, you will owe them a duty of care in tort as well as in contract. However, it is far less likely that a third party will be your neighbour, unless you take some additional step which suggests that you have assumed responsibility to them.

Limitation

When can my neighbour sue me?

This debate about tort can easily be dismissed as esoteric and irrelevant. However, it has at least two very practical consequences. First, the way in which damages are calculated can be very different. The quantum in a tort claim can be much higher than in a contract claim. Second, the date by which you must issue proceedings may be different, which is where yet more confusion arises.

The limitation period in contract is 6 years (or 12 years for a deed) from the breach of contract. For tort, it is 6 years from the date of loss. But in a construction project, when is the date of loss?

Is it when the design is completed? Or the date that the Claimant relies on the design? Or the date when the construction is completed? Or when cracking is first discovered? Or the date when cracking first occurs?

The first four of these dates can be established with certainty. The fifth cannot, because the cracks might go undetected for years. So, it is no great surprise to learn that this was the test favoured by the House of Lords in Pirelli General Cable Works Limited v Oscar Faber & Partners [1983] 2 AC 1. Why go for certainty, when you can choose confusion?

Pirelli has been questioned by the House of Lords in Murphy v Brentwood DC [1991] AC 398 and by the Privy Council in Invercargill City Council v Hamlin [1996] AC 624, but has never been over-ruled.

It's the date when…

Pirelli was reviewed again in Abbott v Will Gannon & Smith Limited [2005] EWCA Civ 198, which is summarised in the 'Recent Cases Round-Up' elsewhere in this issue.

As stated there, the Court of Appeal accepted (albeit with a sense of wistful reluctance) that they were bound by Pirelli. Their conclusion was that the limitation period in tort commenced when the cracking first occurred. They made it clear, however, that they did not like Pirelli. This unease makes it impossible to predict which way the courts will go next.

Confused? You will be

The position on tort as expressed in Mirant probably does reflect the generally accepted position. As such, the courts will hopefully avoid the temptation to tinker. However, there remain unresolved issues, most particularly how Mirant will be applied in a partnering or design and build context. There is, therefore, still the potential for more head-scratching uncertainty on these crucial issues.

Pirelli, in contrast, appears to be generally disliked. It is probably only a matter of time before it is over-ruled. The Court of Appeal clearly believed that limitation should not commence until the market value of the building had been affected. This is unlikely to occur until the cracking has been discovered or is reasonably discoverable. Until the courts reach this, or some other, conclusion, though, expect yet more confusion.

If you have any queries with regard to this article please contact Peter Mansfield on [email protected] or on 020 7367 7838.