Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd

A statutory authority’s foreseeable failure to exercise enforcement powers does not by itself create a private-law duty of care. The court must determine whether the defendant owed the claimant a duty of the particular scope asserted. Proximity is necessary, but the scope of any duty depends on all the circumstances and on whether its imposition is just and reasonable.

Public-health powers governing building work protect occupiers and the public against dangers to health or safety. They do not protect a developer against pure economic loss caused by its failure to comply with approved plans. A duty established for expenditure needed to avert danger to health or safety should not be extended into a general warranty against defects or economic loss.

The Governors of the Peabody Donation Fund engaged contractors, architects and consulting engineers to construct a housing development on London clay. Although the approved drainage design specified flexible joints, drains with rigid joints were installed following an unauthorised agreement between junior representatives. A council inspector later received information disclosing the rigid joints but did not alert his superiors. The drains failed, requiring costly reconstruction and delaying completion.

Peabody alleged that the London Borough of Lambeth negligently failed to use its enforcement powers under Part III of Schedule 9 to the London Government Act 1963. The trial judge found Lambeth liable. The Court of Appeal, Lawton, Fox and Slade L.JJ., reversed that decision: [1983] 3 W.L.R. 754. Peabody appealed, contending that foreseeable economic loss created a common-law duty to warn it or stop the unauthorised work.

1. Appeal dismissed unanimously. Lord Keith of Kinkel delivered the leading speech. Lord Scarman, Lord Bridge of Harwich, Lord Brandon of Oakbrook and Lord Templeman agreed with his reasoning.

2. Per Lord Keith, formulations of the negligence principle in Donoghue v Stevenson and the two-stage approach stated in Anns v Merton London Borough Council should not be treated as definitive statutory formulas. The question is whether the particular defendant owed the particular claimant a duty having the asserted scope. Proximity is essential, but the duty’s scope depends on all the circumstances. Whether it is just and reasonable to impose that duty is material.

3. Peabody bore responsibility under paragraph 13(1) of Part III of Schedule 9 to the London Government Act 1963 for securing conformity with the drainage design approved by Lambeth. Reliance on architects, engineers and contractors did not make it just or reasonable to require Lambeth to indemnify Peabody against the resulting economic loss.

4. Lambeth’s paragraph 15(2) enforcement powers were public-health measures. They protected occupiers and the public against health dangers from defective drainage. They were not conferred to protect a defaulting developer against economic loss caused by failure to follow approved plans. Lambeth therefore owed Peabody no duty to activate those powers, although economic loss was reasonably foreseeable.

5. Per Lord Keith, Anns permitted recovery by long lessees for expenditure necessary to avert danger to health or safety, rather than for pure economic loss as such. Its decision should be confined to persons who were in substance owners and occupiers. Dennis v Charnwood Borough Council was justified because the owners were intended occupiers whose health or safety could be endangered. It was distinguishable because Peabody faced no such danger and had proceeded in disregard of Lambeth’s requirements.

6. Acrecrest Ltd v W. S. Hattrell & Partners had misapplied Anns by recognising a duty to protect a developer’s property from damage without any relevant danger to health or safety. It was wrongly decided and overruled.

7. The Court of Appeal’s order was affirmed. Peabody’s appeal was dismissed with costs.

1. House of Lords: The Court of Appeal’s order was affirmed and Peabody’s appeal was dismissed unanimously with costs.
2. Court of Appeal: Lawton, Fox and Slade L.JJ. allowed Lambeth’s appeal and reversed the finding of liability: [1983] 3 W.L.R. 754.
3. Trial: Judge Oddie, sitting as a deputy official referee, held that the drains failed because flexible joints had been replaced by rigid joints and found Lambeth liable for failing to ensure compliance with the approved design.