Murphy v Brentwood District Council (1990)

Donoghue v Stevenson made a manufacturer liable in negligence for a dangerous product that injures a person or damages other property. In Anns v Merton London Borough Council (1978) the House of Lords went further: a local authority that negligently supervised compliance with building byelaws could be liable to later owners and occupiers for the cost of putting right a defective building that posed a danger to health and safety.

Murphy — heard by seven Law Lords, using the 1966 Practice Statement — departed from Anns and overruled Dutton v Bognor Regis Urban District Council and the cases decided in reliance on Anns. The key analysis: when a defect is discovered before it injures anyone, the owner's loss (repair cost or lost value) is purely economic, and negligence does not compensate pure economic loss outside a special relationship of proximity such as Hedley Byrne reliance.

Over a period ending in 1969, ABC Homes built an estate of 160 houses in Brentwood. Nos 36 and 38 Vineway were built on filled ground on a concrete raft foundation, designed by civil engineers. The design was submitted to Brentwood District Council for approval under s. 64 of the Public Health Act 1936. The council's staff were not qualified to judge it, so it took the advice of independent consulting engineers, who advised that the design could properly be approved. The council approved it on 1 January 1969.

Mr Murphy bought no. 38 from the builder in 1970. From 1981 serious cracks appeared in the internal walls. The raft had subsided differentially; a gas pipe and a soil pipe cracked. Unable to fund repairs (estimated at about £45,000), he sold the house in July 1986 for £30,000 to a builder who knew of the defects. Its value free from defect was agreed at £65,000. His insurers paid him £35,000.

He sued the council. The official referee, Judge Esyr Lewis QC, found the raft design defective, found the consulting engineers negligent in approving it, found that the defects created an imminent danger to the health and safety of occupants, and held the council liable under Anns, awarding £38,777.25 plus interest. The Court of Appeal dismissed the council's appeal. The council appealed to the House of Lords, arguing that Anns was wrongly decided.

1. Was Anns v Merton London Borough Council correctly decided, and should the House depart from it under the 1966 Practice Statement?
2. Does a local authority, in supervising compliance with building byelaws, owe a subsequent owner a duty of care in respect of the cost of remedying a dangerous defect, or the loss in value of the building?
3. What is the nature of that loss — physical damage, or pure economic loss?

The appeal was allowed. The Order of the House set aside the Court of Appeal's order and the judgment of Judge Esyr Lewis. Anns was departed from; Dutton was overruled.

The loss is purely economic

Lord Keith accepted that the loss in Anns was pure economic loss, and that, on the law as it stood, the right to recover such loss not flowing from physical injury did not extend beyond reliance on negligent mis-statements, as in Hedley Byrne. The purposes of the Public Health Act 1936 "did not cover the avoidance of pure economic loss to owners of buildings".

Lord Bridge put the principle for chattels and buildings alike. A manufacturer is liable, under Donoghue v Stevenson, for injury to persons or damage to property which a dangerous chattel causes. But if a dangerous defect is discovered first, "the defect becomes merely a defect in quality", and the owner's loss "is purely economic". Such loss "is recoverable against any party who owes the loser a relevant contractual duty. But it is not recoverable in tort in the absence of a special relationship of proximity imposing on the tortfeasor a duty of care to safeguard the plaintiff from economic loss."

On buildings: "I believe that these principles are equally applicable to buildings." "But if the defect becomes apparent before any injury or damage has been caused, the loss sustained by the building owner is purely economic." Lord Bridge added one qualification: where the building is so close to the boundary that, after discovery of the dangerous defect, it remains a potential source of injury to persons or property on neighbouring land or on the highway, the owner ought in principle to recover from the negligent builder the cost of obviating the danger, so far as necessary to protect himself from liability to third parties.

He gave an illustration: "If I buy a second hand car and find it to be faulty, it can make no difference to the manufacturer's liability in tort whether the fault is in the brakes or in the engine, i.e. whether the car will not stop or will not start. In either case the car is useless until repaired."

The "complex structure theory"

Lord Bridge examined the idea — which he had himself floated in D & F Estates — that one part of a building damaging another part might count as damage to "other property". He described it as the only possible escape from his conclusions, examined it against the case law, and did not accept it as a basis for liability on these facts.

Why Anns was departed from

Lord Keith: "In my opinion it is clear that Anns did not proceed upon any basis of established principle, but introduced a new species of liability governed by a principle indeterminate in character but having the potentiality of covering a wide range of situations, involving chattels as well as real property, in which it had never hitherto been thought that the law of negligence had any proper place."

He called it "a remarkable example of judicial legislation", and said "There can be no doubt that to depart from the decision would re-establish a degree of certainty in this field of law which it has done a remarkable amount to upset."

On policy, he noted that Anns imposed on builders generally a liability going far beyond what Parliament had imposed on house builders by the Defective Premises Act 1972, and that in "what is essentially a consumer protection field" the limits of liability "are best left to the legislature".

His conclusion: "My Lords, I would hold that Anns was wrongly decided as regards the scope of any private law duty of care resting upon local authorities in relation to their function of taking steps to secure compliance with building byelaws or regulations and should be departed from. It follows that Dutton v. Bognor Regis Urban District Council [1972] 1 Q.B. 373 should be overruled, as should all cases subsequent to Anns which were decided in reliance on it."

Lord Mackay LC agreed, stressing the Defective Premises Act 1972: "For this House in its judicial capacity to create a large new area of responsibility on local authorities in respect of defective buildings would in my opinion not be a proper exercise of judicial power."

Lord Oliver, similarly, did not think it right "for the courts not simply to expand existing principles but to create at large new principles in order to fulfil a social need in an area of consumer protection which has already been perceived by the legislature". Lord Brandon and Lord Ackner agreed; Lord Jauncey also agreed that the appeal be allowed.

Because no duty of the scope claimed existed, the House found it unnecessary to decide whether the council had discharged any duty by relying on competent consulting engineers.

A local authority, in exercising its function of securing compliance with building byelaws or regulations, owes no private law duty of care to a subsequent owner or occupier in respect of the cost of remedying a dangerous defect in the building, or the building's loss of value. Where a latent defect in a building or chattel is discovered before it causes injury to persons or damage to other property, the loss is pure economic loss, recoverable in contract but not in the tort of negligence in the absence of a special relationship of proximity. Anns v Merton was departed from, and Dutton v Bognor Regis overruled.

• Direct question: Can a plaintiff recover pure economic loss in negligence? Discuss with reference to Anns v Merton and Murphy v Brentwood District Council. Trace Donoghue → Hedley Byrne → Anns → Murphy, and explain the distinction between a dangerous defect that injures and a defect discovered in time (a "defect in quality").
• With Donoghue v Stevenson: use Murphy to mark the limit of the neighbour principle: Donoghue covers injury to persons and other property, not the cost of repairing the product itself.
• Problem question: a buyer discovers cracks in a flat before anyone is hurt and sues the municipal body that passed the plans. Apply Murphy: the loss is purely economic; no duty in tort absent a special relationship of proximity; the remedy lies in contract or statute.
• Precedent point: Murphy is a standard example of the House of Lords using the 1966 Practice Statement to depart from its own earlier decision.