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Certification liability is more onerous than design liability

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legal matters

The Technology and Construction Court's recent decision in Payne v Setchell contains some good news and some bad news for building designers.

The case, discussed last week (AJ 1.11.01), is worth exploring further to understand the legal principles involved.

As you may recall, the case concerned three members of the same family who had each bought a semi-detached cottage in Norfolk. The cottages were built in 1990, on raft foundations designed by the defendant engineer. In 1999 the claimants discovered that the properties were tilting and required underpinning.

The defendant engineer had originally been retained by the site owner to advise on a proposed extension. On the engineer's advice, two semi-detached cottages were built instead, and later two further cottages were built to the same design.These new properties were not covered by the National House-Building Council (NHBC). At the conclusion of the works, however, the engineer certified that the foundations had been built according to their design and were suitable to support a dwelling on the ground conditions on the site.

As the claimants had no contract with the engineer, they were obliged to bring their claim in tort. There are two possible avenues for a claim in tort against a building designer:

lbreach of a duty of care in and about the design of the building; and lnegligent advice given in respect of the design of the building.

At first glance, it may be difficult to distinguish between the two. If you design a building, are you a producer creating a product for the market, much like a television or a washing machine? Or are you advising that the design is a good one, that it will work and, as a professional, recommending your proposal? The question of which of these best describes the designer's role is crucial to their potential liability to subsequent purchasers of the property designed by the designer.

At the nub of the conundrum is the law's thinking on the recoverability of economic loss.

Economic or financial loss is irrecoverable in an action in tort. Over the decades, however, the legal definition of economic loss broadened and then dramatically contracted.

The seminal decision of the House of Lords in Murphy v Brentwood concluded that a building is much like any other product, and the producer owes no duty of care to make sure that the product itself is not defective. If it blows up or falls down and causes personal injury or damage to other property, then the victim has a claim. If it blows up or collapses without injury or damage, the person who picks up the bill has no such claim. In short, the cost of repairing defective buildings was economic loss, and irrecoverable in tort.

There has always been an exception to this rule, however, in the case of those professing special skill, who give advice which is relied upon by others. Since Hedley Byrne v Heller, they have owed a tortious duty to those who have relied upon their advice to their detriment even if their losses were purely financial.

The decision in the case of Murphy v Brentwood related to builders and local authorities. If the design professionals were 'producers', they too would escape liability. If they were 'advisers', they would not, and despite their smaller stake in the profits of the project, may be exposed to potentially enormous liability.

In Payne v Setchell, JudgeHumphrey Lloyd QC concluded that there should be no distinction between builders and designers of buildings, since both create a product. Thus a designer is not liable in negligence to the client, or to a subsequent purchaser, for the cost of putting right a flaw in the design that the designer has produced - that has not caused physical injury or damage - just as a contractor is not liable.That is the good news.

And the bad news? The engineers, in common with many certifiers, did give advice about their design when they certified that they were satisfied with the construction of the foundations.

Their letter was seen by each of the claimants, and relied upon by them, in place of NHBC documentation. It was, said the judge, the same as a mortgage valuer's report. Thus the designers were liable to the claimants for the cost of repairs.

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