Remember what it was like after the decisions in D & F Estates -V-Church Commissioners [1989] and Murphy -V- Brentwood District Council [1991] when you knew where you stood when it came to assessing whether you (or your client) had any liability in tort for economic loss? The answer was, probably not very much at all. Unfortunately, that is no longer the case.

Partly. this has been as a result of the increased likelihood of the imposition of a duty of care in tort concurrent with a duty of care in contract, a topic discussed in a previous issue of the Digest. It is the purpose of this article, however, to consider how the Courts have reacted to the loophole left open by Murphy concerning the possibility that economic loss arising in tort may be recovered under the principle of negligent misstatement derived from the decision in Hedley Byrne & Co Limited -V- Heller & Partners Limited [1964]
 
The development of the negligent misstatement doctrine is typical of the manner in which the English Courts progress: a gradual, step by step expansion of a doctrine beyond its original bounds presumably until the point that the Courts have had enough and begin restricting it once again. This is to be compared with the more robust approach adopted by some Commonwealth Courts, who have simply decided that Murphy was not as conclusive in this area as the English Courts have assumed.

THE ENGLISH DECISIONS

As is well known, Hedley Byrne concerned the recipient of a bank reference who would (but for a disclaimer of liability) have been able to recover the financial loss suffered by it as a result of the Defendant's negligence in giving the reference, notwithstanding that there was no contract and no obligation on the part of the Defendant bank to give the reference. It is necessary to prove a "special relationship" or proximity between the parties, that one party is holding itself out as an expert in that particular field and that the other party relies upon that expertise to its detriment.

As will be demonstrated below, whilst the requirement for some sort of proximity or special relationship and reliance upon expertise remain essential elements of the tort of negligent misstatement, a number of recent cases has expanded the concept of "statement" far beyond that contemplated in Hedley Byrne.

The first decision is that of Henderson -V- Merrett Syndicates Limited [1994]. This case discussed the question of concurrent duties in tort and contract but it is also important as regards the development of negligent misstatement. The case concerned claims brought by Lloyds' Names against various Defendant underwriters relating to underwriting agency agreements. The issues raised, however, have direct significance to the construction industry. It is not necessary for the purposes of this article to go into the facts in detail, but simply to note that Henderson demonstrated that the Hedley Byrne principle is as applicable to negligent acts giving rise to purely economic loss, as it is to negligent statements.
A further, significant development is the decision in White -V- Jones [1995]. There the House of Lords (by a 3 - 2 majority) allowed the Plaintiffs, two daughters, to recover from their father's solicitors where the father had executed a will disinheriting the daughters but, after a reconciliation, instructed his solicitors to change his will so as to benefit the daughters. This they failed to do for some months, during which time he died.

It was decided that the solicitors had made an assumption of responsibility" to their client and had extended that responsibility to an intended beneficiary for whom they were not acting in circumstances where the solicitors could reasonably foresee that a consequence of their negligence might be the loss of the intended legacy.

It is important to note that there was no relationship at all between the daughters and their father's solicitors and yet the case extends the category of "special relationship" established in Hedley Byrne because, apparently if it had not, the only people who might have a valid claim against the solicitors (the father's Estate) had suffered no loss and the persons who had actually suffered a loss (the daughters) had no claim.
Whilst this may be an example of the Courts plugging a black hole" in much the same way that they did in the Linden Gardens case, White is framed in terms Of negligent misstatement. It is important to note that the claim related to a simple omission by the solicitors - there was no act, statement or advice at all. Accordingly, the "statement" in Hedley Byrne now extends to include an act or an omission.

It is clear from the dissenting Judgments in White that the case was not regarded as turning on its own facts. Consequently. it is possible that construction professionals and contractors may now find themselves liable in tort to tenants, purchasers and occupiers of developments for defective design or defective work for which they are responsible. Subcontractors carrying out design work are probably in the same position.

It must now be at least arguable that the English Courts are tending towards a general test of "assumption of responsibility" by one party to another, a test that has extended the Redley Byrne principle well beyond its original limits.

THE COMMONWEALTH DECISIONS

In contrast to the expansion and development of the negligent misstatement remedy in England, Commonwealth decisions have taken a more direct and robust approach in holding that the decision in Murphy was not as conclusive as the English Courts may have imagined. Whilst these cases are, obviously, not binding upon the English Courts, they provide an interesting comparison.

The first decision to consider is the Canadian case of Winnipeg Condominium Corporation -V- Bird Construction Company Limited [1995]. The Plaintiff bought an apartment block and some years later a section of cladding fell from the ninth floor. The Plaintiff carried out remedial work to the cladding at a cost of £1.5m which it sought to recover from the contractor; architects and cladding sub-contractor by way of a claim in negligence. The State Court of Appeal struck out the claim on the basis that the expenses were for the repair of the building itself and were therefore pure economic loss and irrecoverable.

The Supreme Court, however, disagreed. It concluded that where a building is found to contain defects resulting from negligence which posed a real and substantial danger to the occupants of the building, the reasonable costs of repairing the defects and putting the building back into a safe condition are recoverable in tort by the occupants. The rationale for this conclusion is that a person who participates in the construction of a large and permanent structure which, if negligently constructed, has the capacity to cause serious damage to other persons and property in the community should be held to a reasonable standard of care.

The New Zealand Court of Appeal in Invercargill City Council -V- Hamlin [1994] had to consider a decision that had more than a passing similarity to the facts in the decision in Anns -v- Merton London Borough Council [1978] (which was, of course, overruled in Murphy) During the construction of a house, the Council carried out inspections of the foundations. The owners discovered various problems and commissioned an engineer's report which found that large sections of the foundations had been taken down to an inadequate depth. The owners brought proceedings against the Council to recover the costs of repairing the foundations.

The Court held that New Zealand case law had been reasonably consistent and that "the upheavals in high level precedent in the United Kingdom had no counterpart in New Zealand". Accordingly the case against the Council succeeded notwithstanding the absence of any contract. Whilst this case does provide evidence of a willingness in New Zealand to reconsider Murphy if necessary, it should be remembered that the particular circumstances of the house building market in New Zealand, where it is traditional to rely upon surveys carried out by the local authority rather than commissioning individual surveying reports, mean that a greater reliance would be placed upon the local authority inspections than would be the case in this country.

Finally. in the Australian case of Bryan -V- Maloney [1995], the High Court of Australia considered a case where a subsequent purchaser sought to recover from a builder the cost of remedying defective foundations, basing the claim in tort rather than contract. A majority of the Court found the builder to be liable. The case refers to an "assumption of responsibility" test and, in that respect, is tantalisingly similar to the position at which we have, arguably. arrived in this country. The High Court of Australia noted the following:

"One cannot but be conscious of the fact that the conclusion that Mr Bryan is liable in damages to Mrs Maloney in the present case is contrary to the views expressed by the members of the House of Lords in D & F Estates Limited -V-Church Commissioners and Murphy... Their Lordships' view ... seems to us, however; to have rested upon a narrow view of the scope of the modem law of negligence and a more rigid compartmentalisation of contract and tort that is acceptable under the law of this country".

CONCLUSION

None of this is good news for professionals, contractors or subcontractors. When the development of concurrent duties in contract and tort is allied to the developments outlined above, it seems reasonable to say that we are truly back to square one: the position in tort is now as unclear as it was prior to the decisions in D & F Estates and Murphy.

The differing approaches taken by the English and Commonwealth Courts provide an instructive comparison: we can expect the English Courts to continue (if they continue at all) to expand the ambit of the negligent misstatement remedy gradually. The Commonwealth Courts, on the other hand, may simply take the view that they do not feel themselves to be bound by the decision in Murphy and will continue to establish their own tests of liability in tort for economic loss based principally upon the founding decision in Donoghue -v- Stevenson. Interestingly enough, it would appear that both English and some Commonwealth decisions are arriving at a similar test of "assumption of responsibility" by one party to another.

Practically speaking, we can now assume that the Hedley Byrne "statement" can extend to virtually any sort of advice, statement or act during the construction process or, possibly. even any omission to provide such advice, statement or act. It is, of course, still necessary to prove the special relationship and reliance upon the "statement" and that this "statement" was given (or omitted) negligently and so the general advice is, as always, be careful.

You cannot avoid giving advice or making "statements" - indeed they will be part of the duties and obligations incumbent upon every party to the construction process -but care must be taken to ensure that they are not made negligently. Most importantly, do not assume that simply because there is no contract between you and the recipient of the "statement" you do not have to worry. Unfortunately, you do!