The case of Robinson -v- P E Jones (Contractors) Ltd [2011] EWCA Civ 9 deals with the issue of tortious liability running concurrent to contractual liability. This is an issue both for contractors and for employers because the limitation period in contract is usually shorter than in tort. In contract you can agree to the limitation period, it is usually 6 years from the date of breach, if the contract is signed under hand or 12 years if executed as a deed (in building contracts these periods often run from the date of practical completion rather than breach). In tort the limitation period can be extended to 3 years from the discovery of the breach or defect. This can obviously exceed the contractual period.
Also, if the parties exclude liability under the contract in certain circumstances, the big question is: can you get around this exclusion by suing in tort? Does the contract set out all of the rights and obligations governing the transaction or can the law of tort impose rights and obligations which the parties did not agree at the time of contracting? This case answers these questions clearly.
The answers can be summarised succinctly as follows:
- Contracts between professionals such as architects and engineers generally attract a concurrent duty of care in tort for losses being damage to property, injury to persons and pure economic loss, such as the cost of repairs.
- Contracts between contractors and clients will attract a concurrent duty of care in tort for losses being damage to property or injury to persons; however they will not generally NOT attract a concurrent duty of care in tort for pure economic loss such as the cost of repair.
- Exclusions of liability for economic loss in a building contract will generally not be found to be unfair and will be applied by the courts.
This case tested the question of whether a house builder owed a duty of care to the purchaser, concurrent with a duty in contract, for pure economic loss.
This is a duty above and beyond the builder's normal duty of care to take reasonable care to ensure the client did not suffer personal injury or damage to property. The court concluded that in principle, a builder could owe his client a duty of care in relation to economic loss, but only if there were particular circumstances which evidenced an assumption of responsibility. The court concluded that normally a building contractor will not, by entering into a building contract, assume such responsibility. In this particular case that principle was re-enforced by the fact that the parties had freely chosen to allocate risk between them in a contract.
Background
In 1991 Mr and Mrs Robinson purchased their house, prior to construction from the defendant. Completion took place in 1992. The building contract provided that the house builder's liability to the couple should be limited to that set out in the National House Building Council's (NHBC) standard agreement. By clause 10 of the standard agreement concurrent liability in tort was excluded. The builder agreed to extensive liability to the couple for the first two years post completion and then for the following eight years the NHBC undertook to meet the cost of any major damage. In 2004 Mr Robinson discovered that the fires in two rooms were not drawing properly and the cause was badly constructed flues. He sought the cost of the proposed remedial works from the original builder. He framed his claim in terms of breach of contract and/ or negligence and/or breach of statutory duty by the defendant builder. Mr Robinson asserted that clause 10 was an unfair term of the contract under Unfair Contract Terms Act 1977 (UCTA).
The decision
The court found that the lower court was correct in holding that this defendant did not owe the claimant a concurrent duty of care in tort, in relation to economic loss. Furthermore, clause 10 of the agreement satisfied the requirement of reasonableness under UCTA 1977 and allocated risk between the parties. It was also common ground that the claimant's contractual claim was time barred under the Limitation Act.
Reasonableness?
Mr Robinson argued that clause 10 was unreasonable and the limitation of liability in favour of the builder should not bite. The court found it impossible to conclude that the clause was unreasonable. The NHBC afforded substantial protection for a purchaser in the court's eyes. The court reinforced the view that, had any personal injury been caused by the flues then no limitation clause would have been effective similarly if the flue had caused any damage to the claimant's property, the position would have been that the builder was liable in tort. However, in relation to tortious liability for economic loss, the court failed to see how the test of reasonableness was not satisfied.
Assumption of responsibility?
The court made it clear that only if there is an assumption of responsibility in relation to any contract, can a claim be made in tort for pure economic loss. Unlike professional contracts such as an architect's or engineer's appointment, where there is normally such an assumption of responsibility, there will generally be no such assumption of responsibility in an ordinary building contract. The court is not prepared to impose a co-extensive duty in tort, merely to offer a disenchanted purchaser a remedy it would not otherwise have had under its building contract.
The court was at pains to make it clear that the law of contract is the primary law that governs a relationship between builder and client. Furthermore the principle of 'freedom of contract' is enshrined in our law and should be upheld. Thus, if parties freely choose to allocate risk between them by entering into a contract, the law of tort should be very slow to distort that position and a claim for economic loss in tort will not be possible. If the parties choose to exclude claims for economic loss such as the cost of repairs under the terms of their contract, then even where UCTA is relevant, it is the contract that is the primary determinant of each party's obligations and remedies and the exclusion will usually be enforced.
Comment
The court has valiantly attempted to clarify the law in this area and particularly the line of cases concerning the 'special relationship' and the assumption of risk. There will be a cheer from the contractors' corner, as this case shows that a building contract will not ordinarily attract a duty of care in tort for economic loss and properly incorporated exclusion clauses will successfully exclude liability for economic loss, provided they are reasonable in all the circumstances. From a client's perspective, this case should raise awareness amongst clients to ensure that any exclusions of liability are carefully looked at because in most cases they will be enforced. Also, clients should try to structure limitation periods so that they provide the longest period of protection possible.
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The contents of this brochure are intended as guidelines for clients and other readers. It is not a substitute for considered advice on specific issues. Consequently, we cannot accept any responsibility for this information or for any errors or omissions.
Thomas Eggar LLP is a limited liability partnership registered in England and Wales under registered number OC326278 whose registered office is at The Corn Exchange, Baffin's Lane, Chichester, West Sussex, PO19 1GE (VAT number 991259583). The word 'partner' refers to a member of the LLP, or an employee or consultant with equivalent standing and qualifications. A list of the members of the LLP is displayed at the above address, together with a list of those non-members who are designated as partners. Regulated by the Solicitors Regulation Authority. Lexcel and Investors in People accredited.
Thomas Eggar LLP is not authorised by the Financial Services Authority. However, we are included on the register maintained by the Financial Services Authority so that we can carry on insurance mediation activity which is broadly the advising on, selling and administering of insurance contracts. This part of our business, including arrangements for complaints and redress if something goes wrong, is regulated by the Solicitors Regulation Authority. The register can be accessed via the Financial Services Authority website. We can also provide certain further limited investment services to clients if those services are incidental to the professional services we have been engaged to provide as solicitors.
Thesis Asset Management plc, our associated financial services company, provides a comprehensive range of investment services and advice. Thesis is owned by members of Thomas Eggar LLP but is independent of and separate to it. No lawyer connected with Thomas Eggar LLP provides services through Thesis as a practicing lawyer regulated by the Solicitors Regulation Authority. Thesis is authorised and regulated by the Financial Services Authority. Thesis has its own framework of investor protection and professional indemnity cover but Thesis clients do not enjoy the statutory protection of solicitors' clients.
