Murphy v Brentwood District Council

This appeal concerned whether a local authority can be liable in negligence for loss suffered by a subsequent owner of a house caused by defective foundations approved or inspected by the authority. The House held that the earlier decision in Anns v Merton London Borough Council [1978] AC 728 was wrongly decided in so far as it established that local authorities owed a private law duty to prevent pure economic loss arising from defective buildings. The court concluded that the plaintiff's loss was in substance pure economic loss (the cost to make good or diminution in value) and that no duty of care in tort extends to such loss in the absence of a special relationship (such as reliance) or physical injury to person or other property. The House therefore allowed the appeal, overruled Dutton v Bognor Regis Urban District Council [1972] 1 Q.B. 373 and departed from Anns so far as they imposed that wider liability on local authorities in relation to enforcing building byelaws; the question of liability for personal injury was expressly left open.

The appellant local authority appealed from the Court of Appeal which had upheld an official referee's award of damages to the claimant homeowner for subsidence, cracking and consequential losses arising from a defective concrete raft foundation which the council had approved under the Public Health Act 1936. The claimant had sold the house at a reduced price and had received an insurance settlement; he sued the council in negligence for the diminution in value and related losses. The issues before the House were whether Anns v Merton (the two-stage test and the recognition of a duty to prevent the sort of loss claimed) remained good law, whether loss of value/cost of remedial works to the defective house constituted recoverable physical damage or merely economic loss, and whether Parliament's regulatory regime (including the Defective Premises Act 1972) affected the proper scope of judicially created liability.

(i) Nature of the claim/relief sought: damages for diminution in value and costs of remedial works, together with consequential expenses and interest, arising from defective foundations.

(ii) Issues framed:

• Whether Anns and its progeny established a private-law duty on local authorities to avoid the economic loss suffered by later owners of defective buildings;
• Whether damage to the building itself in these circumstances should be treated as recoverable "material physical damage" or as pure economic loss;
• Whether, in principle, the courts should extend duty of care in negligence into this field or leave any such extension to Parliament.

(iii) Reasoning and conclusion: the majority carefully analysed the history and consequences of Anns and related authorities, concluding that the loss claimed was essentially economic and that Anns had no coherent basis in established principle. The House determined that Donoghue v Stevenson and related product-liability reasoning do not justify imposing a transmissible warranty-like common law duty to repair or replace a building to protect subsequent purchasers from economic loss once a defect is known. The court emphasised the significance of the Defective Premises Act 1972 and parliamentary competence in setting the scope of consumer-protection liabilities. For these reasons the House allowed the appeal, overruled Dutton and departed from Anns in relation to the scope of private-law duties of local authorities regarding building control; it left open liability for personal injury arising from latent defects.

Appeal allowed. The House held that Anns v Merton was wrongly decided in so far as it imposed a private-law duty on local authorities to prevent pure economic loss to owners of buildings arising from defective construction or compliance with byelaws; Dutton was overruled. The claimant's loss was characterised as pure economic loss and was not recoverable in negligence absent some special relationship or physical injury to person or other property. The question of liability for physical personal injury was left open. The cause was remitted to the Queen's Bench Division for further action consistent with the judgment, and costs were ordered to the appellants.

Judgment at first instance by His Honour Judge Esyr Lewis (official referee) 18 March 1988 awarded damages to the claimant. Appeal to the Court of Appeal dismissed on 21 December 1989 ([1990] 2 W.L.R. 944). Leave was granted to appeal to the House of Lords which allowed the appeal on 26 July 1990 ([1991] UKHL 2) and remitted the cause to the Queen's Bench Division.