Samuel Payne, a Norfolk builder, probably thought that he was on to a good thing when, in 1990, he was approached by a client, Mr Wright, to build two semi-detached cottages in the village of Ten Mile Bank near Downham Market.
Wright had built Nos 1 and 2 Fair View Cottages on raft foundations, on the advice of structural engineer John Setchell Ltd from King's Lynn.
Payne agreed to build a second, identical pair on the same site, at a reduced price, if No 3 was transferred to him on completion. He later sold it to his son. He then persuaded his daughter to buy No 2 as an investment and subsequently bought No 1 for himself. In 1997, the tenant of No 2 discovered that the raft foundation had tilted. Payne's own structural engineer confirmed that the original ground investigations had been inaccurate and that piled foundations ought to have been used instead.
Both sets of cottages required underpinning.
The Payne family wondered if it could claim the cost of these remedial works against Setchell, the structural engineer retained by Wright, which had recommended the raft foundations and certified their completion. Little did the family know that the resolution of its commonenough problem involved the exploration of one of the most difficult areas of the law, namely, whether a subsequent owner has a claim in tort against a negligent builder or designer for the cost of repairs, where the damage is limited to the building itself.
In Payne v Setchell (16.3.01), Technology and Construction Court judge Humphrey Lloyd QC observed that the difficulties of this type of case had been around for many years and, despite the efforts of the Law Commission, the legislature and the appellate courts, they have not been resolved.
These difficulties can be summarised as follows:
Subsequent owners seldom have a contract with those responsible for the design and construction of their property. They may be able to claim in tort for negligence if they can show that those responsible owed them a duty of care;
As a rule, economic loss is irrecoverable in an action in tort. In Murphy v Brentwood , the House of Lords held that the cost of repairing defects to the building itself, such as underpinning faulty foundations, rather than damage caused by the defective building to 'other property', was economic loss and irrecoverable. In Murphy, however, the Law Lords had grappled with the 'complex structure' theory, whereby one defective part of a building could damage 'other property' within the same structure. Did the foundations to the two cottages fall within this exception?
Claims in tort can usually only be brought within six years from when the damage occurred.
As with most foundation cases, Payne did not discover the damage within the limitation period.
The Latent Damage Act 1986 extends the time within which a claim can be brought to three years from the date the damage was known about. The Defective Premises Act 1972 gave subsequent owners, such as the Paynes, a statutory right of action against bad designers and builders. Could the six-year limitation period be extended under the Latent Damage Act?
In a lengthy judgment the judge threw some light on these difficult issues and held that:
1) no distinction should be made between 'builders' and 'designers' when considering liability in tort for defective buildings since they both create a product. After Murphy neither is liable for defects in the building itself;
2) the 'complex structure' theory is no longer tenable. To treat the foundation slab under No 1 as separate from that under No 2 would be completely unrealistic;
3) although Setchell did not owe a duty in respect of its design of the foundations, it did owe the claimants a direct duty of care when certifying that the design of the foundations had been prepared with reasonable care. The certificate was equivalent to a mortgage valuer's report; and 4) the three-year extension under the Latent Damage Act applied to this claim but not to its claim under the Defective Premises Act.
In conclusion, Setchell was liable to the claimants not because its foundation design was faulty but because it certified that it was sound.