Claims in tort
Tunnel Refineries Ltd -v- Bryan Donkin Ltd and Others, ORB 8 May 1998
Recovery of economic loss in tort
Further restriction on the right to recover the cost of putting right defects in a building unless the recovery can be based upon breach of contract.
The law of tort does not permit the recovery of full compensation for every loss suffered as a result of the wrongdoing of a defendant.
One well established limitation is that a plaintiff cannot recover in tort the cost of replacing a defective item or any consequential loss, when only the item itself is damaged as a result of the defect. Thus a person who manufactures goods which he intends to be used or consumed by others is under a duty to exercise such reasonable care in their manufacture so as to ensure that they can be used or consumed in the manner intended without causing physical damage to persons or their property.
This view of the law of tort has often been challenged but remains intact from the 1932 decision in the case of Donoghue -v- Stevenson. In 1991 the House of Lords reaffirmed this view in the case of Murphy -v- Brentwood. "If a manufacturer produces and sells a chattel which is merely defective in quality, even to the extent that it is valueless for the purpose for which it is intended, the manufacturer's liability at common law arises only under and by reference to the terms of any contract to which he is a party in relation to the chattel." Thus the cost of repairing a defective building, even where work was carried out in order to prevent physical injury, would not be recoverable in tort.
Such damages are often labelled somewhat inappropriately "economic loss", although many commentators have observed that damages are by their very nature always "economic". Nevertheless economic loss as such is irrecoverable in tort and to succeed to recover such damages, a breach of contract must be established. Hence the advent in the construction industry of collateral warranties, bringing and transferring contractual rights to third parties that may suffer loss as a consequence of defective design or construction.
This general rule which excludes the recovery of damages in tort has its exceptions. The primary exception is where there can be said to be a special relationship or proximity between the parties. This has been held to exist between a professional adviser and the recipient of its advice, as in the leading case of Hedley Byrne and Company Ltd -v- Heller and Partners, or between a client and specialist nominated subcontractor, as in the case of Junior Books Ltd -v- Veitchi Co Ltd.
Another exception is variously described as the "complex structure theory" and was upheld in the case of Jacobs -v- Morton in 1994. Jacobs had undertaken underpinning works to the foundations of his property. The foundations had subsequently failed to the extent that the property required to be demolished and rebuilt. The court held that Jacobs was entitled to recover his rebuilding costs from the negligent designer of the underpinned foundations, on the basis that these foundations were to be considered as separate from the property itself. Jacobs was therefore not suing for the rectification of the defects in the underpinnned foundations, but was instead recovering the cost of damage caused to the "adjacent" property: namely the other parts of the building.
Jacob's case was particularly assisted by the fact that the defective foundations were constructed by someone other that the main contractor responsible for the construction of the building as a whole, and had been constructed at a different time to the rest of the building.
These matters were re-examined in the case of Tunnel Refineries Ltd -v- Bryan Donkin Company Ltd and Others in May of this year. Tunnel owned factory premises in Greenwich, London. One of the processes they undertook was a continuous round the clock manufacture of syrup from maize and wheat.
Donkin had been engaged to design, manufacture, install and commission two mechanical vapour compressors. The compressors were large pieces of machinery which comprised numerous components, including a fan which was to rotate on a shaft at 16,500 rpm in order to compress vapours passing through it. In 1990 after some years of continuous service, a defective vane in the fan shattered in use, wrecking the compressor and shutting down production in the factory.
The incident caused no damage to anything else and no personal injury. The court was therefore asked to consider whether the complex structure theory would apply, such that Tunnel would be entitled to recover from the manufacturers of the fan the economic loss incurred in the destruction of the compressor and lost factory production. The court held that no such theory could apply to the present case. The compressor, taken as a whole and including the fan, was to be regarded as having one function, namely to compress the vapour. Furthermore the compressor, for which the defective fan was an integral part, had been acquired by tunnelling one single transaction.
Accordingly the court held that Tunnel was not entitled to recover damages from the negligent manufacturer of the fan, on the basis that the compressor could not be regarded as "other property" for the purpose of the rule established in Donoghue -v- Stevenson.