Linklaters Business Services (Formerly Hackwood Services Company) v Sir Robert McaLpine Ltd

On an application to strike out or obtain summary judgment, the court should not finally determine a developing and fact-sensitive question of negligence law where material issues remain unresolved. A claimant must show a realistic prospect of success, but the court must avoid conducting a mini-trial and should consider evidence reasonably expected at trial.

The cost of repairing or replacing the defective thing itself is ordinarily economic loss and is not recoverable in tort absent a contractual duty or sufficient proximity. The position may differ where negligent work by a specialist contractor causes physical damage to other elements of a structure. Whether corrosion to pipework caused by defective insulation fell within that possible category required factual investigation.

Linklaters Business Services occupied premises containing a chilled-water air-conditioning system. The vertical steel pipework had been insulated by Southern Insulation (Medway) Ltd, a sub-sub-contractor. It was alleged that defective insulation allowed condensation to penetrate, causing rust and corrosion to the pipework and requiring substantial remedial work.

How Engineering Services Ltd and How Group Ltd sought contribution or indemnity from Southern. Southern applied for summary judgment or strike-out, contending that Linklaters’ alleged loss was unrecoverable pure economic loss because it concerned the building or the relevant work itself. The central issue was whether Southern owed a duty of care in respect of physical damage to pipework which Southern had not supplied.

1. The application for summary judgment and strike-out was dismissed. Costs followed the event, and Southern was ordered to pay the costs of the application. HES and HGL’s costs were summarily assessed at £12,617.50.

2. The court adopted the approach summarised in JD Wetherspoon PLC v Van Den Berg & Co Ltd [2007] EWHC 1044 (Ch). The claim had to have a realistic, rather than fanciful, prospect of success. The court should not conduct a mini-trial, but should analyse assertions where appropriate and consider evidence reasonably expected to be available at trial. Particular caution was required in a developing area of jurisprudence.

3. The authorities, including Murphy v Brentwood District Council [1991] 1 AC 398, established that a builder’s duty generally did not extend to the cost of repairing or replacing the building or element supplied by the defendant. Such loss was ordinarily economic loss, recoverable in contract or where a special relationship imposed a duty protecting against economic loss.

4. The authorities also indicated a possible distinction where a specialist contractor’s defective component or equipment caused physical damage to other parts of a structure. The observations of Lords Keith and Jauncey in Murphy v Brentwood District Council supported that possibility. Consequential corrosion to pipework caused by defective insulation might be conceptually comparable with damage caused by a defective boiler, electrical installation or other ancillary equipment.

5. The pleaded facts did not establish whether the rust and corrosion amounted to tortious physical damage, why the whole pipework system was replaced, or how much of the system was damaged. Those matters required detailed, probably expert, evidence. The legal dividing line between consequential damage and damage to the thing itself was insufficiently settled for summary disposal.

6. Permission to appeal was granted because the application raised important issues of law in a developing area, although the judge considered his ruling correct and proper.