In tort (absent a special relationship between the parties) only those monetary losses which are consequent on damage to property are recoverable; “pure economic loss” is not. A builder does not owe a duty of care in tort for pure economic losses suffered by the building owner.
This so-called “Murphy rule”, deriving from Murphy v Brentwood District Council  AC 398, was considered recently in Thomas and Thomas v Taylor Wimpey and others. The court in Thomas rejected attempts to argue that obiter comments made in the Murphy judgment can be relied on to establish a liability for pure economic loss where the money has been spent remedying a defect which is potentially dangerous to neighbouring land.
The Murphy rule, and the “qualification”
Legal and construction practitioners will no doubt be familiar with the general rule, established in Murphy v Brentwood District Council, that pure economic losses are only recoverable if they flow from a breach of contractual duty. In the absence of a special relationship of proximity, they are not recoverable in tort.
In the Murphy judgment it was held that the loss suffered by a building owner in consequence of a dangerous building defect is generally irrecoverable as being pure economic loss. Lord Bridge had qualified this principle, obiter, as applying except “if a building stands so close to the boundary of the building owner's land 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”. In such circumstances, he said, the cost of repairing the defective works ought to be recoverable in tort by the owner of the defective building.
Thomas & Ors v Taylor Wimpey
In Thomas v Taylor Wimpey, the claimants sought to cut across the long-standing principle that pure economic loss is not recoverable in tort, by relying on Lord Bridge’s obiter qualification in Murphy. Following discovery of defects in retaining garden walls, they sought to recover the cost of remedial works from various parties, including Taylor Wimpey, the builder and the National House Building Council (NHBC).
The Claimants’ claim failed in all respects. They failed to establish:
- the “qualification” to the Murphy rule represents the law; there is no compelling policy justification for recognising its existence
- that the defective walls were covered by the NHBC Buildmark Warranty. Section 3 of a Buildmark Warranty provided cover in so far as material relates to "Retaining walls necessary for the structural stability of the house, … its garage or other permanent outbuilding”. It was held that:
- interpreting a Buildmark Warranty is subject to the same principles as apply to the construction of other written contracts. Contracts should be interpreted objectively, which requires consideration of the contract as a whole, including nature, formality and quality, and
- the Claimants had failed to prove the walls were necessary for the structural stability of the houses or garages at the properties. Accordingly, the remedial works fell outside the scope of the NHBC warranty.
The Court was unimpressed by the Claimants’ expert evidence and, in particular, the lack of robust analysis and detailed technical investigation, stating: “the expert evidence was prepared with a degree of haste that was all too obvious at trial. The experts had no geotechnical information other than from their own observations on site. They had no data concerning the structural properties or robustness of the buildings but relied on the inferences they drew from the appearance of the buildings and their own experiences.”
Key points to note
- Parties looking for novel ways to work around issues like the limits on recovery of pure economic loss should be wary of relying on obiter comments; here the comment which formed the basis of the Claimant’s claim was made by a single judge from a panel, and ultimately unsupported by subsequent case law.
- The Court made clear that builders have potential liability under contract and by virtue of existing duties under the Defective Premises Act 1972 and the tort of negligence concerning injury to persons and property. In the absence of an articulated principle for liability, there is no compelling policy justification for recognising the existence of Lord Bridge's qualification.
- The Court’s commentary on the quality of the expert evidence adduced at trial serves as a reminder for parties to litigation to ensure that expert evidence is robust and based on detailed analysis.
- Applying normal principles of contractual interpretation, NHBC warranties will be interpreted objectively, with primary consideration being given to the textual analysis of the contract itself. However, regard must be given to the factual context when interpreting such contracts: “words must be set in their textual, as well as in their factual, context.”
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.