The Bank of East Asia, Ltd. v. Tsien Wui Marble Factory Ltd. and Others and Remo Riva and Others (Third Parties)
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CACV000185/1997 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL 1997, No. 185
And 1997, No. 189
Coram: Hon. Mayo, Leong and Rogers, JJ.A. in Court Date of hearing: 12, 13, 14, 15, 18, 19, 20 and 21 May 1998 Date of handing down judgment: 7 July 1998 ______________________ JUDGMENT ______________________ Mayo, J.A.: 1. These appeals were heard together as they both relate to a judgment dated 25 June 1997 of Findlay, J. In CACV 185/97 the Appellants (P&T) are appealing against the order that they must pay the Plaintiff in the action (BEA) HK$38,502,951.85 being the cost of rectification work to the cladding for their Headquarters building in central. They also join BEA in its appeal in CACV 189/97 against the Judge's order that BEA's claim against the 1st Defendant in the action Tsien Wui Marble Factory Ltd (TW) be dismissed. The rationale for this being that in the event that their appeal is unsuccessful they hope that TW will be required to make contribution towards the amount owing to BEA. BEA are pursuing their own appeal against this dismissal. 2. The history and background to the litigation is set out in some detail in Findlay, J's judgment. 3. Very briefly when BEA built their new Bank Headquarters at the beginning of the 1980's P&T were appointed as Architects and Structural Engineers and TW was nominated as the sub contractor for the granite cladding for the building. 4. The cladding on the building failed. There was extensive expert evidence at the trial on the reasons for the failure and the Judge made a finding of fact that the failure was attributable to its faulty design. This finding has not been seriously disputed on this appeal. P&T appeal 5. In considering this appeal it is necessary to have regard to important concessions which were made by their counsel Mr. Harris in the trial. These were referred to by Findlay, J on p.13 of his judgment.
6. Mr. Harris then went on to formulate what in his view were the remaining outstanding issues in the litigation in as much as this related to this part of the litigation.
7. As will be appreciated from this the important issue which had to be determined by the Judge was whether BEA's claims were time barred. In this connection their writ against TW was issued on 20th June 1994 and the one against P&T was issued on 25th June 1996. 8. Before considering the law applicable to this it is necessary to have regard to the evidence which was before the Judge and his findings of fact. 9. Mr. Michael Thomas, S.C. for P&T submitted that when considering the Judge's findings it was necessary to bear in mind that it is evident from the Judgment that the Judge proceeded upon the basis that the burden of proof for establishing that there was a time limitation lay upon the Defendant. He argued that this was a misconception of the position. This burden had to be discharged by the Plaintiff who had to prove that his cause of action was not time barred. He particularly placed reliance upon the passage at p.30 of the Judgment of Ralph Gibson LJ in London Congregational Union v. Harriss & Harriss [1988] 1 ALL ER 15:
10. Mr. John Scott, S.C. for BEA's reply to this was that the Judge had been correct in his analysis of the position. He mainly relied upon the Victorian case of Pullen v. Gutteridge & another [1993] 1VR 15 p.27. The Full Bench said at p.73 of the report:
11. As will be seen from these respective commentaries much depends upon the view which is taken of the nature of the claim which is being pursued. For reasons which will be given later in this judgment I take the view that the Bank's claim is for economic loss and this being the case I favour the conclusion which is reached by Ralph Gibson LJ. As a consequence of this it is necessary to exercise a large measure of caution in considering any findings of fact by the Judge in the present case. 12. The Judge dealt with the evidence relating to limitation at p.22 onwards in the judgment. 13. The cladding work was completed in July 1982. The Judge went on to consider the evidence of marks appearing on the surface of the granite panels. This was in 1984 & 1985. The marks did not at first seem to occasion any particular concern. It was not until 1989 that a survey was undertaken by Mr. Michael TANG of Hong Kong Land who were at that time the managers of the building. Mr. TANG did not have any specialised expertise in cladding. He noted some clipping and discolouration of panels but his overall conclusion was that there were no major or significant defects observed. Some minor work was undertaken as a result of this in December 1989 & September 1990. One panel was replaced in 1992 and another in 1993. 14. It was not until June 1993 that a letter was received from Bolton Construction Co. Ltd. which referred to extensive damage and the necessity to either replace the granite panels at a cost of about $40 million or effect remedial measures which would cost about $5.6 million. It was at this time that more intensive investigations were undertaken which revealed the full nature and extent of the problems. 15. Mr. Thomas submitted that it was clear from the Judge's analysis of the evidence that he had focused his attention upon the physical manifestations of damage which resulted from defective design and the extent to which this became apparent to BEA and those advising them or acting on their behalf. What he had not done was to consider the matter on the basis that from the handing over of the cladding work in July 1982 there was in existence defective work which did not comply with the contractual requirements. 16. It is next necessary to consider the law on limitation. The sections of the Limitation Ordinance, Cap. 347 which are relevant to this case are S. 4, S. 31 & S. 38A. 17. The case has to be considered within this framework. 18. Mr. Thomas drew our attention to the significant developments which have taken place over the last 20 years on this subject. To illustrate these developments he referred in particular to six House of Lords or Privy Council cases and one English Court of Appeal case. 1. Anns v. Merton London Borough Council [1978] AC 728 19. None of the claims made by the Owners of houses which had faulty foundations which had been inspected by the council were statute barred as it was held that the cause of action only arose when the state of the building was such that there was present or imminent danger to the health or safety of the persons occupying it. 20. In this connection the cracks which had appeared on the buildings should not be treated as physical damage. 2. Pirelli General Cable Works Ltd. v. Oscar Faber and Patners [1983] 2 AC 1. 21. In this case cracks had started to appear on a chimney which had formed part of an extension. The Defendants were the Architects who were being sued for the negligent design of the extension. It was held that the discoverability of the cracks was not a relevant consideration. Time began to run when the cracks first appeared. Lord Frazer considered Anns case at p.17 and analysed the position in this way.
22. It is significant to add that later in his speech (at p. 18) Lord Fraser went on to express the view that a negligent architect should not be viewed in the same way as a negligent solicitor unless the building in question was "doomed from the start". It is by no means clear what this meant or what was the rationale of this view. 23. However what is clear is that Lord Fraser did not have the concept of economic loss in mind when he expressed this view. 24. There is a further aspect of this case which is relevant to our deliberations. It was generally considered that the consequences of the case led to a highly unsatisfactory situation. As a result legislation was introduced in an attempt to mitigate the effect of Pirelli. This was achieved by the Latent Damage Act 1986 which provided for S. 14A of the Limitation Act 1980. This amendment was adopted in Hong Kong in the form of S. 31 & S.38A of our Ordinance.
25. It will be noted from these sections that if the facts relevant to the cause of action were not known at the date of the accrual of the right of action the time limit would have been 1st July 1985. This was a fall back position taken by Mr. Thomas if he was unable to establish a claim for economic loss. 3. London Congregational Union v. Harriss & Harriss [1988] 1 ALL ER 15 26. The main significance of this case was that although it followed Pirelli Sir Denys Buckley, who was in a minority, had the foresight to consider the claim which was being made in terms of economic loss. He said at p. 33:
4. D & F Estate Ltd. v. Church Commrs For England [1989] AC 177 27. This case was stated to be the beginning of the counter revolution referred to by Mr. Thomas. The court was prepared to consider the application of Donoghue v. Stevenson [1932] AC 562 to the liability of a builder of a permanent structure. 28. Lord Bridge had this to say at p. 206:
29. Shortly prior to this (at. P. 205) Lord Bridge rationalised economic loss on the basis that the owner of the building had not got the benefit of what he had bargained for. 5. Murphy v. Brentwood DC [1991] AC 398 30. This appeal was heard by a seven man court. It was an extremely important case. It had the effect of completely changing the law on this subject. It was held that Anns and cases which had followed it were no longer good authority. More particularly so far as the present case is concerned it established that Anns was a false trail. 31. It recognised that where a special relationship existed there was a duty of care which could be based on the Hedley Byrne principle which led to liability for economic loss. 32. What was perhaps most significant in reading all of speeches is the nature and extent of the criticisms of Anns and the reference to all of the problems and difficulties which arose from the case. The general thread of the criticisms was that the uncertainties which inevitably were encountered had resulted in a proliferation of cases where artificial distinctions had had to be made to accommodate the principles which had been propounded. 33. There can be no doubt that their Lordships entirely rejected Anns principles. 6. Henderson v. Merrett Syndicates Ltd. [1995] 2 AC 145 34. In this case the House of Lords considered the question of Agents owing a duty of care in Tort. This was in the context of litigation involving Lloyds Names. Consideration was given to the situation where there were concurrent rights in Contract and Tort. Of particular relevance to this litigation consideration was given to the circumstances when economic loss may flow from the negligent performance of duty by a party with whom a special relationship exists. Much assistance in this connection can be derived from a passage from the speech of Lord Goff at p. 180 of the report.
35. These observations by Lord Goff need also to be considered in the light of his comments at p.185 where he had in mind their application to professional advisors such as Architects & Solicitors.
36. This latter passage provided some justification for Mr. Thomas to cite as authority some of the cases involving professional negligence of solicitors which will be considered later where it is almost invariably the case that even if neither the solicitor nor the client is aware of the act of negligence the right of action is deemed to accrue at the time when the professional services were rendered. 37. A further case referred to by Mr. Thomas was Invercargill City Council v Hamlin [1996] AC 634. 38. This Privy Council case is an illustration of the alternative route which has been adopted running to a large extent counter to Murphy. The appeal which was based upon New Zealand Law proceeded upon the basis that Anns case was essentially still good law. It is of importance to this case as both Findlay, J and Mr. Scott place heavy reliance upon it. At p.18 of his judgment Findlay, J refers to the case and to principles drawn from Pirelli and from the Council of the Shire of Sutherland v. Heyman [1985] 157 CLR 424. 39. It is apparent from the speeches of the Law Lords that they accept that in New Zealand and Australia the law has developed in a different way. There is a reversion back to the principle that where there is a latent defect in a building "the element of loss or damage which is necessary to support a claim for economic loss in tort does not exist so long as the market value of the property is unaffected." 40. Mr. Thomas submitted that Invercargill, and the Australian and Canadian cases adopting a similar rationale had no application whatever to the present case. 41. Mr. Thomas went on to submit that the professional negligence cases also assisted him. He argued that there was no logical reason to differentiate them from claims being made for economic loss particularly where as in the present case the services which had been performed by P&T had been of a professional nature. He referred to Forster v. Outred & Co. [1982] 1 WLR 86 and DW Moore & Co. Ltd. v. Ferrier [1988] 1 ALL ER 400. 42. The latter case is of particular assistance as Bingham L.J. (as he then was) considered both the law of contract and tort at p.411 and the logic of causes of action arising at the same time.
43. It is significant to add that the Hong Kong Courts have followed a similar route. The Court of Appeal held in Ko Ming Bor and Others v. Lo & Lo Unreported being CA 41/96 that where solicitors had been negligent the cause of action arose at the time when the professional services were rendered. The judgment in that case was delivered in October 1996. 44. Mr. Thomas also referred as to the recent case of Nykredit Mortgage Bank Plc v. Edward Erdman Group Ltd. No. 2 [1997] 1 WLR 1627. This was a case where a Bank sustained a loss as a consequence of the negligent valuation of property by a valuer. Lord Nicholls commented on the practical difficulties which are encountered in some detail on p.1632.
45. It was Mr. Thomas' primary contention that BEA had a claim for economic loss at around the time when the cladding was completed and in any event no later than when the final certificates for the work were issued. 46. Accordingly the claim being made by BEA against P&T was time barred and Findlay, J had erred in holding that the claim could still be maintained. 47. Mr. Scott contended that following the transfer of sovereignty there was no good reason why any preference should be accorded to U.K. decisions rather than the decisions of Commonwealth Courts. This would be in conformity with Article 160 of the Basic Law. 48. As indicated earlier he placed great reliance upon Invercargill and the principle laid down in the case that where there is a latent defect in a building a claim for economic loss does not exist in law so long as the market value of the building remains unaffected. 49. This was of great importance in this case. Mr. Scott submitted that his position had been prejudiced as a result of the different approach which was being adopted in the appeal to the way the case had been conducted before Findlay, J. In the trial the case had generally proceeded upon the basis that the defects in the cladding had been latent defects. The Judge had not made a specific finding of fact on this although it could be argued that this was implicit in his overall findings. However in the appeal Mr. Thomas had contended when arguing his fall back position that the defects were patent defects. He pointed out that it would have been self evident to any qualified observer of the cladding that there were not 13 mm gaps on every floor as was laid down in CP 298. 50. This was a fatally flawed submission. One of the facts which had been agreed amongst all the Experts at the trial was that CP 298 was not an absolute requirement even though it was referred to in the contract because of the objects of the code could be achieved by alternative means that would be acceptable. The matter was even more complicated than that. As the movement in the concrete was at its most active in the first two months it could be the case that equivalence could be achieved with lesser tolerances if a period of time had been allowed to elapse before the cladding was installed. 51. There was also the evidence to the effect that considerable practical difficulties were encountered when attempts were made to survey the cladding. 52. A further issue which had not been satisfactorily resolved at the trial was whether there had in fact been any economic loss immediately after the building had been completed. Mr. Scott submitted that certainly in the early stages the defects would not have been readily apparent. If BEA had sold the building at that time there would have been no question of the purchase price being discounted to reflect the cost of reinstating the cladding. The opposite contention was advanced by Mr. Thomas. He argued that it was clearly the case that BEA had not got what it had bargained for namely a defect free cladding system. 53. Mr. Scott made a further submission as to why BEA should be entitled to damages as a fall back position if his main contentions did not find favour. He submitted that on the evidence the defective cladding constituted a danger to members of the public as the building adjoined other buildings and an open area in front was accessible to members of the public. Mr. Scott referred the parallel type of claim for physical damage which Lord Bridge described at p.475 of his speech in Murphy:
54. Mr. Scott argued that the Judge had been wrong to dismiss this claim simply on the basis that it was not possible to have two rights of action available at the same time. 55. It is by no means clear to me that there is good authority for the proposition advanced by Lord Bridge. Although it was followed in Morse & Others v. Barratt (Leeds) Ltd. [1992] CON LJ 158 the proposition did not commend itself to Lord Oliver who said at p489 of Murphy:
56. It would also appear on the facts of the present case to have no application. P&T rendered services as Architects and Surveyors. Their duty of care was to BEA. It did not extend to third parties who might sustain damages as a consequence of negligent professional advice. This alternative claim is not viable. 57. It will be appreciated from all of this that one of the core issues of this appeal is the question as to whether the court should continue to follow the U.K. law on limitation or whether it should develop along similar lines to Commonwealth Countries such as New Zealand, Australia and Canada. 58. In the course of a persuasive submission Mr. Scott drew to our attention a considerable amount of material which suggested that the reasoning in Invercargill was to be preferred to that of the English cases. In particular he referred to an article in the Law Quarterly Review by I.N. Duncan Wallace on the subject which contained references to the views expressed by Lord Coohe. He was strongly of the opinion that the Commonwealth approach had more to commend it. 59. All of this has to be balanced with the advantages of the U.K. approach. It is instructive to consider the speeches of the Law Lords in Murphy when they weighed the consequences which had flowed from Anns case. They concluded that the law had not developed in a way which was conducive of clarity and certainty. 60. What also perhaps more importantly needs to be borne in mind is that when Invercargill was decided the decision was based on New Zealand Law which was different to English Law as there were statutory provisions which had some relevance. 61. In the final analysis we have to decide whether it would be right for us in effect to undertake what has been described in other circumstances as judicial legislation. As stated earlier in this judgment when referring to Ko Ming Bor it was the common law in Hong Kong at the date of the transfer of sovereignty that Murphy and the professional negligence cases were the line of authorities which applied. This remained the law of the H.K.S.A.R. 62. I am not convinced that a compelling case has been made out to justify the court in departing at this time from the English Common Law. I am satisfied that Mr. Thomas's analysis of the law is correct and that BEA had a right of action in tort for economic loss when the construction of the building was completed or shortly thereafter. This being the case their claim against P&T was time barred. The result of this is that P&T's appeal is successful. BEA's Appeal 63. So far as Findlay, J's judgment was concerned there were 7 Grounds of Appeal in the supplementary notice of appeal lodged by BEA. During the course of the hearing Mr. Scott informed us that he did not propose to argue Grounds 4, 5 & 6. He did not abandon these grounds. However I am satisfied after hearing the submissions of Miss Gladys Li for TW that Mr. Scott was right not to argue the grounds and that they cannot be sustained. 64. That there leaves Grounds 1, 2, 3 and 7. They are as follows:
65. It is convenient to consider these grounds together. 66. The Judge's finding of fact in relation to the design for the installation of the cladding was at p.6 of his judgment:
67. Having made this finding he then went on to hold that TW should not be held liable in negligence because the work had been delegated to Mr. Ragaglini. He did not analyse in any detail the contractual position as he said that he accepted the submissions made by Mr. Scott that the contractual claim was statute barred. 68. There is no doubt in my mind that under the terms of the sub contract between Gammons and TW that TW remained liable for the design of the cladding. 69. The fact that they were aware that Mr. Ragaglini was assisting them in the performance of their duties makes no difference whatever. The essential point is that at no time did anyone on BEA's behalf absolve TW from the performance of their duties. 70. Contrary to this TW warranted the due performance of the contract. 71. Before leaving the question of liability under the contract it is necessary to consider the complaint made in Ground 3 concerning the warranty. 72. Clause 2.15 of the specification reads:
73. The Judge dealt with the matter at p.14 of his judgment in this way.
74. I do not see how it is possible on any fair reading of clause 2.15 to come to any other conclusion than the one arrived at by the Judge. It was on the evidence clearly contemplated that a guarantee would be entered into. It never was and that was the end of the matter. 75. The way that the Judge proceeded was to hold that TW owed a duty of care to adequately supervise Mr. Ragaglini's work. He put it this way at p. 12 of his judgment.
76. With respect to the Judge this displays a misunderstanding of the circumstances when a duty in tort can be imposed on a contractual situation. It is not possible to divorce the duty in tort from the duty in contract. This is apparent from a passage from the speech of Lord Goff at p.180 of Henderson v. Merrett cited earlier in this judgment and also from a later passage at p.192 of the same speech.
77. I will now consider the question of limitation. With the rejection of any liability by TW to guarantee the design of the cladding system for the life of the building there only remains the question as to whether the claim in tort is time barred. 78. I have already given reasons at some length as to why I consider that BEA's claim against P&T was time barred. I do not see any reason to come to any different conclusion concerning the claim against TW. There can be no doubt on the facts that a special relationship did exist and for the reasons which have been given I am satisfied that BEA's right of action against TW accrued at the time of the production of the defective design or at latest the completion of the construction of the building. 79. The consequence of all of this is that P&T's appeal is allowed and BEA's appeal against TW is dismissed. There will be no necessity for there to be any apportionment of liability. 80. So far as costs are concerned I would be disposed to make an order nisi that BEA should bear the costs of TW & P&T both before us and before Findlay, J. Leong, J.A.: 81. I have read the judgments of my Lords Mayo and Rogers. I agree with the conclusions reached by my Lords. Rogers, J.A.: Background 82. This Action arises out of the failure of the granite cladding on the headquarters building of the Plaintiff Bank. Construction of the building was commenced in 1981 and the certificate of practical completion was issued on 7th March 1983. The 2nd Defendants were the architects who designed the building and had overall responsibility for the construction. The main contractor has not been a party to this Action. The 1st Defendant was the Nominated Sub-contractor for the installation of the granite cladding. 83. Action was commenced on 20th June 1994 against the 1st Defendant for breach of contract and in negligence relating to the design and installation of the granite cladding. On 25th May 1996, Action was commenced against the 2nd to 5th Defendants, also for breach of contract and in negligence. 84. The trial of this Action took place in May and June 1997 and on 25th June 1997 judgment was entered for the Plaintiff against the 2nd to 5th Defendants for the sum of HK$38,502,951.85 being the cost of re-cladding the building and associated consultants' fees. The Action against the 1st Defendant failed and as a consequence, the third party proceedings which the 1st Defendant had brought against the 2nd to 5th Defendants were dismissed. The issues on this appeal 85. There are two major groups of issues on this appeal. The first is whether the 1st Defendant is liable to the Plaintiff in tort and, as a consequence, liable to make contribution to any damages awarded against the 2nd to 5th Defendants. The other issues on this appeal are whether any Action against the Defendants is statute-barred. Liability of the 1st Defendant 86. Although any liability of the 1st Defendant would be to the Plaintiff in the Action, it was Counsel for the 2nd to 5th Defendants who made the major arguments in favour of liability against the 1st Defendant. For the main part, Counsel for the Plaintiff was prepared to adopt the arguments of Counsel for the 2nd to 5th Defendants. Should liability on the part of the 1st Defendant be found, the 2nd to 5th Defendants would claim contribution from the 1st Defendant as joint tortfeasors liable for the same damage. 87. As I have indicated, the Action brought by the Plaintiff against the 1st Defendant was framed in contract and tort. There was no dispute in this Court that any Action in contract was statute-barred. The damage complained of was economic loss 88. The essence of the Plaintiff's complaint in respect of the cladding was that it had deteriorated to such an extent that it had to be replaced with new cladding and new fixing means. The Plaintiff complained that there were semi-elliptical shaped spalls and cracking around what were referred to as the "split tail" anchor positions of the fixing brackets which held the cladding panels in position. There was isolated vertical cracking and spalling particularly along the vertical stone panel edges and some at the mid span of the panels. It was said that, as a result, the external granite cladding of the building was damaged and caused a threat or danger to the health or safety of the occupants of, and other persons or property in the vicinity of, the building. As such, the damage which was the subject of complaint was damage to the building which had been constructed. 89. It is unnecessary to trace the development of the law of negligence in relation to the question as to whether damage to a building constitutes damage recoverable under normal principles of negligence or whether it constitutes economic loss. It suffices to say that as a result of the more recent cases in particular D. & F. Estates Ltd & others v. Church Commissioners for England and others [1989] 1 A.C. 177 and Murphy v. Brentwood District Council [1991] 1 A.C. 398, it is now settled that the damage occasioned by the defective construction of the building is to be considered as economic loss. The reason, put shortly, is that there has been no damage either to persons or other property; the building itself never existed otherwise than as a defective building. As such therefore, any loss which has been occasioned to the owner of the building is diminution in the value of the building by reason of any defect. 90. In this regard, there is a clear parallel with goods. If goods are made with a latent defect such that they cause damage, either to a person or other property, any loss is recoverable in negligence on the reasonable foreseeability test: see Donoghue v. Stevenson (1932) A.C. 562. If, however, a product which is defective is manufactured, then short of unforeseen injury to person or property taking place, the only loss which the purchaser or owner of that product has suffered is the cost of either rectifying the defect or, at worst, the whole value of the product. Recoverability of economic loss in negligence 91. The law of negligence in relation to the recovery of damages for economic loss has again been the subject of some development. Predicated, perhaps, in the case of Nocton v. Lord Ashburton [1914] A.C. 932, the recoverability of damages for economic loss based on the tort of negligence was thoroughly examined in the case of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd [1964] A.C. 465. That case concerned the giving of faulty financial information by a bank. The House of Lords held that the economic loss which was suffered by the Plaintiff could be recoverable where there was a proximity of the parties by reason of a special relationship. There had to be an assumption of risk as Lord Morris put it at p.502 of the report :
The Junior Books case 92. In the case of Junior Books Ltd. v. Veitchi Ltd (1983) A.C. 520 the requirement of a sufficiently close proximity between the plaintiff and the defendant and in particular the reliance upon skill and experience of the defendant was referred to by the House of Lords, see for example, Lord Roskill at p.546 B-D. That was a case where a sub-contractor who had installed defective flooring had been sued in negligence for the loss occasioned to the building owner in having to replace the defective flooring. It was said that the relationship between the sub-contractor and the building owner had been in "as close a commercial relationship ..... as it was possible to envisage short of privity of contract." There had been no direct contractual relationship but clearly specific reliance on the Defendant's skill had been placed by the building owner who had had the building built for it. Because of the reliance on the flooring contractor's skill, there was that sufficient proximity relationship. 93. However, the decision in the Junior Books case was also in part based upon the reasoning in Anns v. Merton London Borough Council [1978] A.C. 728 which has subsequently been overruled in Murphy v. Brentwood District Council [1991] 1 A.C. 398. Nevertheless, as was pointed out in the Murphy case, the reasoning in Junior Books also encompasses the recoverability of economic loss on the basis of negligence founded upon a special relationship of proximity. 94. In the Murphy case, the House of Lords recognised that in order for a building owner to recover against a builder, or in that case a local authority alleged to be in breach of statutory duty, it was necessary to establish a special relationship of proximity which imposed on the tortfeasor a duty of care to safeguard the plaintiff from the economic loss. Lord Bridge, for example, in his speech used the expression "special relationship of proximity" on at least five occasions. 95. Whereas the Murphy case was concerned primarily with the liability alleged to be incurred by a local authority, the application of the principles of that case are clearly wider. Was there a special relationship of proximity between the 1st Defendant and the Plaintiff? 96. In order to determine whether there was a special relationship of proximity between the 1st Defendant and the Plaintiff, 3 things must be considered (a) what was the damage; (b) what was the cause of that damage and (c) whether there has been an assumption of liability in respect of the subject matter of the cause of complaint. In respect of the damage, that, as I have already alluded to, was economic loss. The immediate cause of complaint was the defective cladding. Since the cladding was part of the building and the building had only ever existed with that cladding, it was economic loss. Important for this case however is the next consideration namely what was the cause of the defects exhibited by the cladding. In this respect, it is necessary to consider the facts as found by the Judge below. The findings of the Judge 97. The Judge first considered the question as to why the cladding failed. There were six experts who were called by the parties. To some extent, they were in agreement as to their evidence. There was a meeting of the technical experts prior to the trial and they issued a record of their agreement. Save in three respects, their conclusions in the record of agreement were unanimous. 98. The expert who had reservations on three of the points was a Mr. John Perry who had been called on behalf of the 2nd Defendant, Palmer and Turner. He alone put the blame for the failure of the cladding upon the manner of installation and not on the design. The Judge said that the impression he gained from Mr. Perry's evidence was that "he was arguing a case for (the architects) as an advocate, rather than giving evidence as an objective expert." The Judge having considered his evidence rejected it. The Judge's conclusion was "that it was much more likely that the designer of the cladding system had simply made mistakes and that those mistakes were such that no competent designer purporting to have specialist skills in this field should have made." 99. In coming to his conclusion that the design of the cladding system was faulty the Judge did not identify precisely what those faults were. One passage in the judgment which gives some clue to the factors which the Judge may have thought relevant was the passage on page 11 where, in speaking of the Italian architect who was called in by the 2nd Defendant, the Judge said :
100. It will be necessary to examine the nature of the design faults later; but for present purposes, it suffices to say that the defective nature of the cladding was caused by design faults. Was there an assumption of responsibility in respect of the design of the cladding system? 101. The Judge then went on to consider where the responsibility for the design of the cladding system lay. In examining the evidence, the Judge below quite understandably attached much more importance to the contemporaneous documents than the oral evidence of what had happened something like 16 years before the trial of the Action. He examined the contractual documents and in particular Clause 2.24 of the Specification which put on the cladding sub-contractor the responsibility for providing shop drawings of the typical joints and back-up material, the location and kind of control and thermal movement joints, the location and kind of pressure relieving joints, the angles, cramps, dowels and other accessories, and the jointing systems and patterns. The 2nd Defendant's explanation for imposing these tasks on the cladding sub-contractor was that they, the architects, did not have sufficient expertise to undertake this work themselves. The Judge came to the conclusion that, as a matter of fact, during the period leading up to the acceptance of its tender, Tsien Wui, the 1st Defendant, did undertake the responsibility for the design of the cladding system. 102. The relevant dates in respect of the contract for the cladding system were as follows. 103. The tender documents are dated 16th February 1981. The 1st Defendant was a tenderer for the cladding system. If the tender were to be successful there would be a sub-contract between itself and the main contractor. The tender documents included a form of agreement between the employer namely the Plaintiff and the sub-contractor which was required to be completed as part of the tender process. That Agreement provided, inter alia, as follows :
104. In paragraph 2.15 of the specification for the works it was provided that the fixing for the granite shall be in accordance with the recommendations of C.P. 298:1972. 105. By a letter of the 5th May, the contractor, Gammon, informed the 1st Defendant that its tender had been successful. It seems that on the 18th May or thereabouts the direct Agreement between the Plaintiff and the 1st Defendant which I have just referred to was signed. 106. The exact effect of that Agreement may be open to questions of interpretation particularly in respect of the words "will be designed by the Sub-Contractor" since subsequent events show that the 1st Defendant did not itself design the cladding system. 107. The main contract between the Plaintiff and the main contractor was dated 25th May 1981 but the sub-contract between the main contractor and the sub-contractor Tsien Wui was not effective until August of that year. 108. The judgment goes on to deal with the events which took place between the parties. One important matter which the Judge refers to is the letter of the 21st May from the contractor to the 2nd Defendant. That letter is important for two reasons. In the first place, the contractor made perfectly clear to the architects, the 2nd to 5th Defendants, that the 1st Defendant should not be responsible for the design work as it was outside the scope of its experience and indeed the relevant experience was not available in Hong Kong. The letter then went on to say that these matters were of no mean importance and had to be taken seriously not least because there had apparently been failures of cladding systems in buildings overseas. Finally, the contractor refused, point blank, to accept the clause regarding any lifetime guarantee by the 1st Defendant and said that if such was required, it would have to be given directly between the 1st Defendant and the Plaintiff. I should note here that that guarantee was apparently never given. This is again, perhaps, significant in view of the fact that it is referred to in paragraph 2.15 of the specification. The Judge noted in respect of this letter that one of Palmer and Turner's employees appears to have put a note on the letter; that note, to my mind, indicates, perhaps, a lack of appreciation of the seriousness of the points that were made by the contractor. 109. The judgment then goes on to indicate how in a meeting of 5th June 1981 the contractor expressed serious concern about the fixing details of the external granite. The minutes recorded that the architect would liaise with the contractor and the 1st Defendant and advise in due course. It was also agreed on the contractor's suggestion that the shop drawings would be submitted directly to the architect for inspection. 110. On the 11th June, the 1st Defendant wrote to the contractor, with a copy to the architects, submitting shop drawings and saying that the final shop drawings as well as the fixing method will be re-submitted at the end of the month with the overseas consultants. It appears from that letter that it is clear that the parties were adopting what was called the "American Standards". Although the papers do not contain any precise identification as to what those standards, it seems from the evidence that they were Marble Institute of America standards. Later in June, the contractor wrote again to the architects in terms which could only be regarded as expressing concern about the design process and the failure to follow the recommendations of CP 298. In early July, there was a meeting at the offices of the architect between the 1st Defendant, someone from the main contractor and Mr. Ragaglini. Mr. Ragaglini was an independent architect engaged by the 1st Defendant. He came from Italy for the specific purpose of designing the cladding. At least one document still remains from that meeting which, as the Judge found, was on a balance of probabilities made by Mr. Ragaglini. Given the notation on it, I doubt that any other conclusion could have been come to. The Judge's conclusion in respect of all this was "In my view, the whole weight of the evidence points to Mr. Ragaglini having come to Hong Kong to design the system." 111. Although in the course of argument, the 2nd to 5th Defendants' Counsel attempted to suggest that simply because his clients had met Mr. Ragaglini in a conference, it was not sufficient to show that his clients were aware that the design work for the cladding system was being done by Mr. Ragaglini as an independent contractor of the 1st Defendant, those submissions were made without any reference to the evidence and come no way near being able to disturb the Judge's clear finding of fact. The Judge's conclusion at pages 11 and 12 of his judgment was as follows :
112. Even if it is challenged by Mr. Thomas S.C. on behalf of the 2nd to 5th Defendants that there may not have been any specific approval, in the sense of an "imprimatur" from either the Plaintiff or the 2nd Defendant as to Mr. Ragaglini, it is clear that they accepted Mr. Ragaglini as the person undertaking the work, work which as I have already pointed out the 2nd Defendant was at pains to give evidence that it was incompetent to do. Indeed the 2nd Defendant, as the architect on behalf of the Plaintiff, raised no objection to what Mr. Ragaglini was doing or the drawings which they clearly knew he was preparing. The learned Judge went on at the foot of page 12 to say :
113. Against those findings which in my view are fully supported by the evidence, the argument put forward by the 2nd to 5th Defendants and the Plaintiff in trying to impose tortious liability in negligence upon the 1st Defendant was to try to ascribe to the cause of action in negligence factors imported from the law of contract. If the 2nd to 5th Defendants and the Plaintiff were able to exclude the 1st Defendant's profession of a lack of any expertise in the design of the cladding, the correspondence, the meetings and the actions which actually took place and rely simply upon the contractual documents, they might be in a position to muster a case. Whether liability in negligence can only be excluded by a contractual provision? 114. At the heart of the 2nd to 5th Defendants' argument lay the submission that when liability in negligence arises out of a special relationship the tortious duty of care can only be restricted or limited by a clearly worded "contractual provision". That contention is wrong for two reasons. On a very facile plane, it elevates to a contractual status, and seeks to import concepts and rules from the law of contract to, the law of tort relating to negligence. In the second place, in relation to the action in negligence said to arise out of a special relationship it confounds the question as to whether there has been an "assumption of responsibility" with the question of whether there has been a disclaimer. The argument was founded upon quotations out of context from the speech of Lord Goff in Henderson v. Merrett Syndicates Limited [1995] 2 A.C. 145 and seeks to apply those quotations without regard either to what Lord Goff was saying or to the reasoning and the issues to which the relevant parts of his speech were directed. The Henderson case 115. The Henderson case concerned preliminary issues in three Actions brought on behalf of Names against managing and members' agents at Lloyd's. Important amongst those issues was whether the managing agents who were also members' agents owed Names a non-contractual duty to carry out their underwriting functions with reasonable skill and care. Other issues arose in the appeal but crucial to the questions which Lord Goff was considering in the passages from which quotations were taken which were relied upon by Counsel for the 2nd to 5th Defendants was the issue as to whether tortious liability existed. One of the reasons why it was important to consider the existence of tortious liability was that, if successful, the Names could take advantage of the more advantageous position on limitation in respect of tort. For the purposes of the appeal, there had been no dispute that there had been an implied term in the contracts between the Names and the agents that a duty to exercise care and skill in the exercise of the relevant functions under the agreements was to be implied. 116. It was against that background that the question had to be considered as to whether a like obligation rested upon the managing agents in tort. If managing agents who were also members' agents owed such a duty of care in tort direct to the Names, the effect would be that the direct Names would have alternative remedies in contract and tort against the managing agents; if the managing agents who were not also members' agents owed a duty of care in tort to indirect names, there would be a corresponding right of action to the indirect names notwithstanding a contractual connection between the indirect names and the managing agents. 117. The argument on behalf of the agents which was presented to the House of Lords and with which Lord Goff was dealing was fundamental. It was said that a duty of care did not exist in tort because the imposition of such a duty upon the agents was inconsistent with the contractual relationship between the parties. Lord Goff undertook an extensive analysis of the position in this regard. He noted for example that in France the concurrence of claims in contract and tort was outlawed. The position in England had, at one time, been thought to be similar. Cases such as Groom v. Crocker [1939] 1 K.B. 194 were cited as authority for that proposition. Indeed, such high authority as Sir Wilfrid Greene M.R. had held that "The relationship of solicitor and client is a contractual one. It was by virtue of that relationship that the duty arose, and it had no existence apart from that relationship." 118. It is unnecessary to go into whether or not the decision in Groom v. Crocker is explicable in the context of the law as to negligence and the type of damage which was recoverable for that tort in 1939. It suffices to say that, as recorded by Lord Goff, it was not until the decision of Oliver J. in Midland Bank Trust Co. Ltd v. Hett, Stubbs & Kemp [1979] Ch. 384 that a clear position was taken that a solicitor could be liable to his client for negligence in either contract or in tort. 119. Lord Goff also referred to the position as it existed in a number of other jurisdictions including Ireland, New Zealand, Australia and the United States of America. It is to be noted that a common theme running through those jurisdictions was that it is in only comparatively recent times that the concurrent jurisdiction in contract and tort was accepted. 120. Before examining the historical and comparative law as to the ability to sustain concurrent actions in contract and tort, Lord Goff had analysed the factors which gave rise in the law of tort to an action based on negligence for economic loss. Not unnaturally, Lord Goff took as his starting point the decision of the House of Lords in Hedley Byrne. He cited the passage in the speech of Lord Morris at pages 502-503 to which I have already referred. 121. From that, Lord Goff went on to consider the principles which underlay the cause of action for the tort of negligence. In his analysis, it rested upon a relationship between the parties which could be general or specific to the particular transaction and which may or may not be contractual in nature. Lord Goff acknowledged that in some cases criticism had been made of the concept of "assumption of responsibility" as being "unlikely to be a helpful or realistic test in most cases". Nevertheless, he considered that in cases such as those which he was considering recourse could be had to such a concept which had been adopted, in one form or another, by the whole of the House of Lords in Hedley Byrne. He considered that an objective test should be applied when asking the question whether in a particular case responsibility should be held to have been assumed by the Defendant to the Plaintiff; this was especially true in contexts concerned with a liability which was said to have arisen under contract or in a situation equivalent to a contract. On that basis, Lord Goff considered that there was no difficulty in a person who had assumed responsibility being liable in damages in respect of economic loss which flowed from negligent performance of the relevant services. It is to be noted that at this stage, at page 181E of his speech, Lord Goff said :
122. That statement, apart from others, was latched onto by Counsel for the 2nd to 5th Defendants as being a statement of law that the assumption of responsibility might only be negatived by a contractual disclaimer. That however is clearly not what Lord Goff was saying. In the circumstances of the cases which he was considering the starting points for considering the bases of the relationships between the parties were the contracts; there were no oral statements or other negotiations or pre-contractual or post-contractual documents which were being considered by the House at that stage. Lord Goff in commencing his consideration of this aspect of the case had, as I have pointed out, based himself on the three-fold premise that where a person (1) possessed a special skill; (2) undertook to apply that skill for the assistance of another and (3) that other relied upon that skill, there were circumstances where the law would hold that there had been an assumption of responsibility. That assumption of responsibility was therefore quite irrespective of contractual terms, albeit the only known contact between the parties was contractual. 123. Lord Goff was well alive to and mentioned many of the differences between the action in contract and the action for negligence. At page 185 of the report he alluded to the different rules as to remoteness of damage which are less restrictive in tort than in contract and to the availability of the opportunity to obtain leave to serve proceedings out of jurisdiction. He had previously referred to the differences in the effect of the rules as to limitation of actions. Two features were referred to by Lord Goff which are particularly pertinent to the present case. One was the right of contribution between joint tortfeasors which would not be available to those who had severally broken their separate contracts. This was the guiding feature which encouraged counsel for the 2nd to 5th Defendants to take up the cudgel so vehemently on the Plaintiff's behalf against the 1st Defendant. If the 1st Defendant's liability to the Plaintiff were simply in contract, limitation periods aside, the 2nd to 5th Defendants would be unable to claim contribution from the 1st Defendant. Naturally, of course, the period of limitation is also a highly relevant matter in this case. 124. I find it unnecessary to go through all the passages in Lord Goff's speech which Counsel for the 2nd to 5th Defendants relied upon. Many of them were tenuous in the extreme, even when the statements were taken out of context. But when seen in context, for example the passage at page 193, the argument was fallacious. The point Lord Goff was dealing with was the argument that a liability could not exist in tort as well as in contract. By saying that a person could contract out of liability for negligence, Lord Goff was not saying that the only basis upon which assumption of liability in tort could not have occurred is if the Defendant had contracted out of it. He was merely saying that if he had contracted out of it, no liability would exist. 125. The argument, as presented by Counsel for the 2nd to 5th Defendants, was to put the cart before the horse. It was to equate the absence of an exclusion of liability for negligence in the contractual documents as being the sole ground upon which it could be said that there had been no assumption of liability. 126. In my view, however, the law of negligence is the law of negligence. It is not some sort of hybrid importing concepts from the law of contract to suit the case of a co-defendant who wishes to claim contribution or a Plaintiff who wishes to found an action. Application of the test of Lord Morris 127. Reverting to the three-fold test of Lord Morris in the Hedley Byrne case as approved and adopted by Lord Goff, it seems to me that the 1st Defendant did not possess any special skill in relation to the design of the cladding and indeed the 1st Defendant had made perfectly clear to the relevant parties, both the 2nd Defendant and the Plaintiff, that it did not possess such skill and would need to employ a consultant. Nor was the result of the arrangements between the parties that the 2nd Defendant would apply any such skill for the assistance either of the Plaintiff or the 2nd Defendant; the upshot of the arrangements was that the 1st Defendant would engage an overseas independent contractor to do the design work and the 2nd Defendant would approve the design work. Still less was any reliance placed upon any skill that the 1st Defendant might be supposed to have had. The reliance was placed on Mr. Ragaglini's skills whom all parties knew perfectly well were being imported because the 1st Defendant (and for that matter the 2nd to 5th Defendants) did not have the relevant design skill in what appears to have been a comparatively new type of construction. Very likely that skill did not exist in Hong Kong at all at that time. 128. Although the conclusions which I have reached are expressed in a slightly different way to the way the Judge expressed them I consider that the Judge came to the correct conclusion in respect of liability alleged against Tsien Wui. 129. There are 2 further aspects on this part of the case. 130. Having reached the conclusion that the 1st Defendant did not assume responsibility in the relevant respect the general rule that an employer is not answerable for the wrongs or negligence of an independent contractor would apply. 131. One further point raised by Counsel for the 1st Defendant was that no reliance was placed on the 1st Defendant in respect of the design of the cladding system because the 2nd Defendant was responsible for checking and approving the design details and the drawings. Hence any reliance was placed on the 2nd Defendant and not on the 1st Defendant. That seems to me a point which might be raised if the question as to the amount of any contribution between the tortfeasors were to be relevant. It does not seem to be a point which would absolve a party in the position of the 1st Defendant if the true analysis were that it had assumed responsibility. 132. The factual basis, however, is slightly obscure. It was the 2nd Defendant's case that they had no expertise in respect of this type of cladding and would also have relied on an overseas expert. It was put to Mr. Fong, the director of the 1st Defendant who appears to have had in practice substantial control of that company, that he was well aware of the 2nd Defendant's admitted lack of expertise. There was, however, no finding in this respect. The limitation period 133. Under Section 4 of the Limitation Ordinance, Cap. 4, actions founded on tort shall not be brought after the expiration of 6 years from the date on which the cause of action accrued. The scope of Section 4 of the Limitation Ordinance has, however, been changed in relation to negligence actions by Section 31. The operation of Section 4(1) is excluded in those cases where Section 31 applies. Section 31 applies to actions for negligence, other than those relating to personal injuries, where a plaintiff, or his predecessor-in-title, first had the knowledge required for bringing an action for damages in respect of the relevant damage and the right to bring an action after the date on which the cause of action accrued. Provided those conditions are satisfied the limitation is either 6 years from the date on which the cause of action accrued or 3 years from the date of knowledge if that period expires later than the 6-year period. 134. However, the provisions of Section 31 are not applicable in cases where an action was statute-barred under the Ordinance before 1st July 1991: see Section 38A(2)(a). In practical terms therefore if a cause of action for negligence had accrued on 30th June 1985, or before, the cause of action was statute barred before the coming into force of Section 31. Essential components of the tort of negligence 135. In Dorset Yacht Co. Ltd. v. Home Office (1970) A.C. 1004, Lord Pearson said that it was logically correct and often convenient for the purposes of exposition to analyse the tort of negligence into three components. Those three components are as follows :
Damage necessary for cause of Actin in negligence to accrue 136. For the cause of action in negligence to be complete, it is, therefore, necessary that damage should have been occasioned to the plaintiff. Three points could be made upon this. The first is that it must be relevant damage. The second is that it is of course necessary to identify the damage and thirdly, not all damage need have been suffered by the date of the commencement of the action, it being sufficient that damage has been suffered; recovery can be claimed on the basis of further damage that will be suffered. The Nykredit case 137. The case of Nykredit Mortgage Bank PLC v. Edward Erdman Group Ltd [1997] 1 WLR 1627, concerned a claim by a bank in respect of an overvaluation of property on the basis of which the plaintiff had lent money. In the case the House of Lords considered the question of when a cause of action accrues in an action for negligence based on economic loss. Lord Nicholls at 1631D pointed out that naturally the first step in assessing when the first measurable relevant loss was sustained was to identify the relevant measure of loss. The next step in the process was to consider when that loss had occurred. 138. Although the House of Lords was considering the question of a negligent valuation and its effect on the value of a property, the principles which were applied appear to be applicable in other cases. Lord Nicholls pointed out that the moment at which a loss is revealed will depend on the facts of each case. He went on to say that the difficulties may be evidential and practical but are not difficulties in principle. It was not necessary in his judgment that the lender, for example, should have realised his security and fully quantified his loss: the Court would always do its best to assess a loss if disaster were evident and the plaintiff were to sue without waiting for the full effect of the damage. Nature of the damage 139. As pleaded in the Statement of Claim, as I have referred to above, the damage in respect of which the claim is made is the economic loss consequent upon the physical damage occasioned by the faulty design of the external granite cladding of the building which has resulted in the cladding having to be removed and replaced by new cladding. The learned judge below held that the root cause of this physical damage was a design fault. He rejected the evidence of Mr. Perry, the expert on behalf of the 2nd to 5th Defendants who put the cause of the physical damage as faulty construction. In that rejection and in finding that the cause of the physical damage was faulty design, the Judge implicitly also rejected the suggestion which had been made that the physical damage was due to the inherent weakness in the cladding. 140. All experts called by the parties in the action in their record of agreement put the nature of the damage to the cladding as having three elements. First, there were structural movements which included creep, drying shrinkage and thermal movements. Then there was the movements of the cladding, which included swelling which was considered to be small compared with the thermal movements, thermal cyclic movement and then some very small effects of load distortion and stress relief resultant upon the stone having been quarried. Lastly, there were fixing movements which included load deflection distortion. 141. These matters were not dealt with by the Judge in his judgment and hence in commenting on them, it is necessary to observe caution in the absence of having seen and heard the witnesses. It is, however, possible to point out that one major consideration was the initial drying shrinkage of the concrete frame of the building itself. The evidence was that in the initial period after the completion of a concrete building, drying shrinkage of the concrete takes places. According to Mr. Kinnear, whose evidence favourably impressed the Judge, the shrinkage over the first year can apparently amount to approximately 1.5 mm per storey height. What is termed "long term creep" can also account for a significant change in the dimensions of the building. There can be rotation of floors and beams at the corners of the edges of the building and the long term creep can also cause shortening of columns. Again, this movement is likely to take place shortly after the completion of the relevant structure. A period of 4 to 9 months is suggested. 142. The cladding of the Plaintiff's building is attached to the structure of the building by means of fixing brackets. Obviously one of the important factors that has to be taken into account is how soon after the completion of the building the cladding is attached. In this case, the evidence, such as it was, indicated the cladding was attached very soon after the construction of the concrete structure of the building. The inevitable inference would be that substantial shrinkage and creep effects must have occurred after the cladding had been attached. 143. The effect of what is termed "cyclic thermal fatigue" is apparently progressive. The natural heating and cooling of the granite cladding causes stresses to occur and over a period of time the granite fails. Its failure is apparently slow at first but quickens later. The Black Restenburg (or Impala) granite used for the cladding in the building was, it seems at least as much as any other material, prone to the effects of thermal movement and stresses. 144. Before us attempt was made in the course of argument particularly on behalf of the 2nd to 5th Defendants to suggest that the cause of the cladding failure was a failure to follow, paragraph 3.9.4 of that Code of Practice C.P.298:1972. I do not consider that the evidence as it emerged showed that that was the sole cause of failure. It is true that in relation to compression joints which are designed to take up the differential movement between the concrete structure and the cladding, paragraph 3.9.4 sets out that a clear 13 mm width of joint is considered to be the minimum per floor. Nevertheless, it was agreed by the experts "CP298 as a Code of Practice does not have a mandatory status nor does it apply to all cladding types. Some departures from its recommendations are permitted provided performance equivalence can be demonstrated." 145. It seems that Mr. Ragaglini had suggested that 6 mm joints would be provided for each floor with a 20 mm joint every six floors. From what can be determined that was the specification adopted. Again from the contemporaneous documents it would seem that Mr. Ragaglini had suggested that the American standards should be adopted. It is not clear what those American standards were, what provisions were made for fixing the cladding to the structure in those standards or how they catered for the differential movements in the various building materials. Although the size of the joints would at first blush appear to be an obvious factor which may have led to the eventual breakdown of the cladding, the figures which were produced in the various reports by the experts would lead to the conclusion that even here much would depend upon the circumstances and in particular perhaps the period for drying out allowed, or not allowed, between the completion of the concrete structure and the fixing of the cladding. 146. It seems that the cladding was not only fixed to the structure prior to the completion of the main concrete structure but the cladding commenced when the concrete structure had reached nine to ten storeys, it seems that the cladding may have progressed faster than the construction of the building. The effect of the latter fact would have been to allow almost no time for the shrinkage to take place during drying. 147. Furthermore, there were other departures from the stated recommendations in the CP298 including the thickness of the cladding panels. It seems also that the fixing system for the cladding itself may have contributed to the breakdown of the cladding panels. Here the rigidity of the fixing system seems to me to have been very likely to have been a contributing factor. Furthermore, the use of a single bracket with opposite pointing tails may well have had a significant effect. If separate brackets had been used, the compression might not have been so great. 148. In summary, it seems that the conclusion arrived at by the Judge below that the damage was caused by design failures was correct. The effect of the design failure was probably made worse by the shortness of time allowed for drying of the main concrete structure. The further point which emerges from this is that the damage was progressive. Indeed, even after the writ had been issued, it was likely that the damage would become worse. In those circumstances, the Judge considered it correct to award damages on the basis of replacement of the whole cladding and its fixing system and did not confine damages to the replacement of those panels which were broken. 149. The approach of the House of Lords in the Nykredit case to the question when the cause of damage occurred was, as I have mentioned, to decide first what the damage was and then to decide when that occurred. This would not only seem to have practical logic as its basis but to have the support of prior authority. The Nykredit case involved the overvaluation of property leading to the Plaintiff loaning excess funds. The date at which the Plaintiff suffered the loss was therefore not difficult to determine. More difficulty, perhaps, arises in the case where the economic loss arises from the construction of a building based on faulty advice if the faultiness of the design is not at once apparent. When did the loss occur? 150. The question thus arises as to when the loss occurred. The relevant loss is the diminution in the value of the asset occasioned by the defects in that asset. Specifically in this case the loss, whether it is quantified as the full value of the cladding itself or as the costs of its repair is that occasioned by the defects in the design of the cladding system. 151. There have been a number of dates which have been suggested in the course of argument as being the dates relevant as to when the damage which gave rise to the cause of action occurred. Amongst those, the important ones are as follows :-
152. At least one of those dates can, in my view, be discarded at once. It is not necessary that the loss should have been capitalised to the extent that the repairs had been paid for or that the building had been sold at a loss. As Lord Hoffmann said at p.1639 of the Nykredit case, relevant loss is suffered when the Plaintiff is worse off by reason of the breach of duty of care than otherwise he would have been. In principle, there seems to me to be no reason why a Plaintiff who has suffered economic loss by reason of defective design of the building he has acquired could not retain that property together with its defects and suffer the damage of having a building with a design defect. He would be worse off by bearing the burden of that. 153. Despite the fact that the damage which is the subject of the cause of action is economic loss, if that economic loss is predicated upon a design defect, the question which the Court has to answer in deciding when the damage occurred is when the Plaintiff suffered by reason of defects in the design. The quantum of damage may differ, of course, depending upon the particular facts. Given the construction of a building, for example, the occurrence of physical damage may perhaps be dependent upon outside causative factors and physical damage may or may not occur during the life of the building. Obviously if no physical damage occurs, the quantum of economic loss is considerably reduced. 154. If the defect in the design is such that inevitable physical damage will occur then it might be that it could be said that the law should look upon that damage as having already occurred when the building constructed according to the defective design is constructed. The Pirelli Decision 155. Attention was drawn by Miss Gladys Li S.C., Counsel for the 1st Defendant, to the case of Pirelli General Cable Works Ltd v Oscar Faber & Partners (a firm) [1983] 2 A.C. 1. 156. The Pirelli case concerned an action by a factory owner who had engaged a firm of consulting engineers to advise on the construction of an addition to their factory. The addition included a new 160 ft chimney. Although the chimney was designed and supplied by the sub-contractor, the consulting engineers accepted responsibility for the design. The chimney was pre-caste and had a refractory lining of a new material which proved unsuitable. The chimney developed cracks and later had to be partially demolished and replaced. The defendant consulting engineers admitted negligent passing of the design. At least by the time the case reached the House of Lords, therefore, there was no dispute between the parties as to the liability of the Defendants in negligence. Whether or not the liability was admitted on the basis of Anns does not seem to matter because the nexus between the parties would indicate that there was a sufficiently close relationship of proximity that a duty of care, breach of which would give rise to liability for economic loss, would almost certainly have arisen. 157. Criticism was raised by Counsel for the other parties that that decision had been overruled, impliedly if not explicitly, by the House of Lords in giving the decision in the Murphy case. That criticism is wrong. It is based on extrapolation from quotations of sentences and parts thereof out of context and fails to address the true issues that were decided in either the Anns case, the Murphy case or the Pirelli case. 158. When Lord Keith in the Murphy case said that the Anns decision should be overruled and that all cases following Anns should be overruled, that was in the context of the specific principle in the Anns case with which the Murphy case was concerned. That can be seen from p.472 of the Murphy case. Lord Keith considered that the Anns case 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 buildings bye laws or regulations. Specifically the authority owed no duty of care to the purchaser of a house of which the local authority had had a statutory duty to examine the plans. That was the matter that was being dealt with in the Murphy case and that is what was overruled. What can be said, however, is that caution needs to be adopted in considering the case because of the distinction between physical damage and economic loss. 159. The issue in the Pirelli case was whether the limitation period ran from the date when the physical damage occurred, or from the time when it ought reasonably to have been discovered. In the words of Lord Fraser it was whether in an action founded on negligence in the design or workmanship of a building time ran for the purposes of limitation from a date before the damage to the building was discovered or ought with reasonable diligence to have been discovered. 160. The main point on the appeal was whether the decision of the Court of Appeal in Sparham-Souter v. Town and Country Developments (Essex) Ltd [1976] Q.B. 858 had been correct. In that case a house had been built with inadequate foundations. The Court of Appeal had decided that the cause of action did not accrue until such time as the plaintiff discovered physical damage caused by the bad work. In so far as any reliance was made on anything said in the Anns case, there was a reference at p.17 to the fact that in the Anns case, the cause of action was said to arise when the building was in such a state that there was a present or imminent danger to the health or safety of persons occupying it. Lord Fraser then went on at the foot of p.17 of the report to draw attention to the fact that in the case he was dealing with that was not the basis of the damage relied upon. 161. The reasoning for the decision in the Pirelli case is however instructive. In overruling the Sparham-Souter case the House of Lords was influenced particularly by the reasoning in Cartledge v. E. Jopling and Sons Ltd. [1963] A.C. 758. The principle in that case was that a cause of action accrued in respect of a wrongful act that had caused personal injury even when that injury was unknown and could not be discovered by the Plaintiff. The Plaintiffs in the Pirelli case argued that it was possible in some cases that there was a period when a flaw or defect was latent, that could be followed by a period when the flaw or defect existed in some physical form that had not been discovered or could not be discovered followed by a period when the flaw or defect was obvious. The Plaintiffs in the Pirelli case had argued that no parallel could be drawn with the reasoning in the Cartledge case because in the Cartledge case, the period of latency did not exist and on the finding of the Court in the Cartledge case, the damage had existed from day 1, even though it might not have been discoverable: see page 10 of the report where the plaintiff's argument is reported. 162. Lord Fraser at page 16 pointed out that a man who had inhaled particles of dust may unbeknown to him suffer from pneumoconiosis. It was clear that if he was in such a condition even though that was unknown to him, he had suffered damage which, in appropriate circumstances, would constitute damage for the purpose of founding a cause of action. Likewise, Lord Fraser said at letter C :
163. On that basis, Lord Fraser considered that damage would have occurred even if the person wronged was not aware of it. Lord Fraser then went on to reinforce his position by reference to Lord Pearce's statement in Cartledge at pp.778-779 where he pointed out that it would be an absurd position if a man who was suffering from pneumoconiosis did not have a cause of action because he did not know of it but did have a cause of action immediately upon the taking of an x-ray photograph which revealed the damage. Lord Fraser then drew the distinction between damage which had occurred to the Plaintiff's body, for example, by inhaling dust and the latent defect in a building. 164. It is apparent from his consideration that as far as he was concerned, the damage to a plaintiff's body by the inhaling of dust was immediate. As regards a latent defect, it seems that the Judge considered that it was a question of fact in each case as to whether the latent defect was such that damage to the building was inevitable. He said for example "unless the defect is very gross, it may never lead to any damage at all to the building." He likened a latent defect not to damage which had occurred to a person's body but to a natural weakness in the body which may never develop into a disease or injury. It was in that context that he said that the cause of action would not accrue until damage had actually occurred. That damage might consist of cracks or other defects coming into existence even though the cracks might be undiscovered and undiscoverable. In considering this, he then said : "There may perhaps be cases where the defect is so gross that the building is doomed from the start, where the owner's cause of action will accrue as soon as it is built ....." He said almost exactly the same two pages later at the foot of page 18 of his judgment. 165. Clearly what Lord Fraser was considering was the question of when physical damage occurred. Implicitly he regarded the physical damage as being the foundation of the plaintiff's right of action. It depended on the nature of the latent defect as to whether that damage would be bound to occur or was such that it might only occur. If it were bound to occur then the law could look upon that damage as having occurred since it was bound to occur. But if the physical damage was not bound to occur but might occur, then unless it occurred, it was not damage for the purposes of his consideration. 166. For the purposes of the facts of the Pirelli case, it did not matter from the point of view of the expiry of the limitation period as to whether the date of the completion of the building was taken or the date when the cracks must have appeared unbeknown to the plaintiff. On either date, the limitation period would have expired. The approach in the Pirelli case was the same in principle as that in the Nykredit case : first the nature of the damage was identified and then the date when it occurred was identified. 167. By concentrating on physical damage as the cause of action rather than the economic loss caused by the creation of a building which had design defects sight may have been lost of the fact that even a building with a latent defect may be less valuable to its owner even though physical damage may not have occurred. As an illustration if per chance the plaintiff had wished to sell its bank building immediately upon the completion thereof and a purchaser had not only had a physical survey carried out but had inspected the building plans and discovered that a proper allowance had not been made for shrinkage, creep and thermal expansion and that the fixing means were an inappropriate design when taking into account the thickness of the cladding such that the cladding may well fail, the value of the building may well have diminished. In such circumstances, allowance would no doubt be demanded by the purchaser for the potential hazard to the cladding. In principle, I see no reason why an economic loss of that nature should not be recoverable. Such a conclusion indeed seems to be precisely that to which Lord Keith came in the Murphy case at page 466F. If that were correct, the cause of action in this case would arise upon the completion of the building and the payment therefor by the Plaintiff since the Plaintiff would have obtained a building with an inherent latent defect which may or may not give rise to physical damage. 168. Such a conclusion that the original design of the building was such that the building was defective does not seem at variance with the finding of the Judge. He said at amongst other places :
169. Evidently, the Judge below considered that the defects in the design were such that physical damage was likely to be brought about. On this basis, I consider that the point of time at which the Plaintiff suffered economic loss by reason of the defective design was the date when it acquired and paid for the building with the defective design. For the purposes of this case I take that to be the date of practical completion namely 7th March 1983. Alternative approach on the basis of physical change 170. If I were wrong in that approach and it would be necessary in order to bring an action for economic loss because of a defective design or construction of the building to show that damage had actually occurred to the building or was an inevitable consequence, then it seems to me that on the facts of this case that, even if it could not be said that damage had occurred upon the completion of the building, it must have been so approximately two years thereafter. The cladding work was completed in July of 1982 and the occupation permit was issued on 9th November 1982. From the evidence of the expert witnesses and in particular Mr. Kinnear, the witness called on behalf of the Plaintiff, it is apparent that the effects of shrinkage due to drying and creep would effectively have reached their maxima around two years after the construction of the concrete frame. On the dates given that must have taken place by about July 1984. Thereafter, it would seem from the expert evidence and the agreed facts that the main cause of the effects of the breakdown of the cladding was the cyclical thermal movement. 171. It was Mr. Kinnear's evidence, for example, in Appendix F of his report that between 1985 and 1990, there would have been no discernible increase in damage above that which was derived from the initial shortening of the building caused by shrinkage and creep in the first two years. As a graph which he has exhibited in Appendix F shows, there does appear to have been some damage to the cladding in those early years. Indeed it is evident from Mr. Kinnear's oral evidence that his view was that if any person had inspected the building with a view to purchasing it, at least about 1986 there must have been spalls in the cladding which would have been sufficient to alert a potential purchaser to have asked for assurances of some kind and probably required an expert to look at the building and try to explain the defects. In view of the knowledge available at the time, it might have been difficult to have found the appropriate expert but nevertheless his evidence was supported by other experts including in particular Mr. Shillinglaw. 172. In any event, it seems to me, on Mr. Kinnear's evidence which was to the effect that after the initial failure of cladding, the Restenburg granite was likely to fail increasingly after a period of ten years hence even if the cladding of the building was not doomed to failure from the very beginning i.e. 1982, it must have been doomed to failure and in all probability did fail after the initial shrinkage and creep had taken place i.e. 1984. This was particularly so because this would have partly been dependent, apparently, on the short period between the completion of the concrete construction and the fixing of the granite. In Mr. Fong's evidence it showed that there was hardly any delay between the completion of the concrete and the fixing of the granite. On this basis, it seems that physical defects in the cladding would have emerged at least by 1985. On that footing, the cause of action would have accrued more than 6 years before the 1st July 1991 and the action would have been statute barred. 173. The findings of the Judge himself confirm his view that physical damage would have been occurred from about 1984. For example he said at page 22 :
Then at page 25 he said:
174. This latter passage appears to accept the existence of physical damage at that time but is dealing with the question of whether it would have put the building owner on notice to make investigations as to the cause of the damage. The Invercargill case 175. The Judge below decided the question of the limitation of action on the reasoning of the case of Invercargill City Council v Hamlin [1996] A.C. 624. The Invercargill decision was a decision of the Privy Council on an appeal from New Zealand. In short the basis of that decision was that the cause of action in negligence for economic loss did not accrue until the market value of the building was depreciated by reason of the physical damage. As such the cause of action accrued when a reasonable owner of the building would have called in an expert to examine the state of the building in respect of the defects found to exist. It was at that stage that the defects would have been obvious to a potential buyer and hence the market value of the house would then be depreciated. 176. There had there been a consistent line of authority in New Zealand upon which that decision was founded. The Privy Council referred to the Pirelli decision as an unfortunate decision, not merely because the outcome was unreasonable but because it was thought that criticisms were justified that, the damage being economic loss, it was not until the loss had been actually suffered that damage had occurred and the cause of action had accrued. 177. It seems to me that one important and fundamental distinction arises at least so far as Hong Kong is concerned. The changes effected by inter alia Section 31 of the Limitation Ordinance are modeled on the Latent Damage Act 1986. The purpose of that Act was to cater for the injustice that would occur by reason of a rigid application of the Pirelli reasoning. Those amendments only have meaning if a cause of action could arise at a time when the Plaintiff were ignorant of the accrual of his cause of action. There was no corresponding provision in New Zealand. 178. Given the existence now of Section 31 of the Limitation Ordinance there is no need to strain an interpretation of the facts that would give the date of accrual of a cause of action that would be of practical benefit as opposed to injustice to a Plaintiff. Indeed to do so would perhaps be arbitrary. As has been pointed in respect of personal injuries it would be curious if a person, who does not originally know of latent damage, could have a cause of action dependant on the chance acquisition of knowledge in respect of it. So too with a building, if it has a latent defect and it were said that the cause of action had not arisen because the building owner were unaware of the defect, it would be postponing the date too late to say the action only arose when a reasonable owner would become aware of the defect, since chance might give the owner relevant knowledge before that date. If it did, would the building owner not have a cause of action for the reason that a reasonable owner would not be aware of the defect or would not have been put on notice to make investigations? This was a point made by Lord Keith at page 466F. Furthermore, logical though it might seem to base a cause of action for economic loss on the time when a reasonable owner might be expected to know of the cause of loss, which, for example, might diminish the sale value of his building, that logicality loses some of its force when it is remembered that there is no duty of disclosure of defects on the seller of a building. Hence a building owner might know of the defect but it does not mean he has suffered any loss unless other people also know of the defect. 179. I would mention here that there seems to have been some confusion as to the effect of Sections 4 and 31 of the Limitation Ordinance. At page 26 of the Judgment it is stated that the actions were brought within the time allowed by both sections. Since the sections are mutually exclusive and are dependent on different facts it is not easy to see how the actions could have been brought within the time limits of both sections. 180. Reliance was placed at page 21 of the Judgment below on a quotation which Lord Keith made in the Murphy case from the judgment of Deane J. in Council of the Shire of Sutherland v Heyman 157 C.L.R. 424. The words quoted were ".... any loss or injury is sustained only at the time when [the defect] is first known or manifest." However, that passage was cited by Lord Keith for the purpose of considering whether the damage in the Anns case economic loss. Thus just before citing the passage Lord Keith said at page 466H:
181. The passage cited by Lord Keith was a long passage and dealt specifically with Anns and whether the damage there was economic loss. It concluded by saying that any loss incurred by reason of defective foundations by a person who acquires an interest in a building was economic loss. Lord Keith then said:
182. Hence Lord Keith was considering the question of whether Anns was dealing with economic loss. This had been the crucial point in Deane J.'s judgment. The observations, which Deane J. had made in the passage cited, on the rival arguments as to the date of accrual of the cause of action were incidental and were not relevant in the Murphy case which was not a case where a limitation point was relevant. Conclusion 183. In my view the Judgment of the Court below dismissing the Action against the 1st Defendant should be upheld and the judgment against the 2nd to 5th Defendants should be set aside. An order nisi should be made that the costs here and below should be to the Defendants. 184. Since there is no liability on the part of the 1st Defendant, the third party proceedings also fail. Whereas normally the costs would be payable in the first instance by 1st Defendant but recoverable against the Plaintiff, I consider that in view of the stance taken by the 2nd to 5th Defendants in trying to establish liability in negligence against the 1st Defendant, which has failed, the costs of all the Defendants both in the main action and in the third party proceedings should be dealt with as one. Mayo, J.A.: 185. The result of this is that P&T's appeal is allowed and BEA's appeal against TW is dismissed. An order nisi is made that BEA will pay all the Defendants' costs.
Representation: Mr. John Scott, Q.C. instructed by M/S Masons for Plaintiff Ms Gladys LI, S.C. & Mr. Peter Clayton instructed by M/S Denton Hall for 1st Defendant Mr. Michael Thomas, S.C. & Mr. Jonathan Harris instructed by M/S Mallesons Stephen Jaques for 2nd - 5th Defendants
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