THE BANK OF EAST ASIA, LTD. v. TSIEN WUI MARBLE FACTORY LTD. and Others and REMO RIVA and Others (Third Parties)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1997, No. 185
(Civil)

______________________

JUDGMENT

______________________

Mayo, J.A.:

1. These appeals were heard together as they both relate to a judgment dated 25 June 1997 of Findlay, J. In CACV 185/97 the Appellants (P&T) are appealing against the order that they must pay the Plaintiff in the action (BEA) HK$38,502,951.85 being the cost of rectification work to the cladding for their Headquarters building in central. They also join BEA in its appeal in CACV 189/97 against the Judge's order that BEA's claim against the 1st Defendant in the action Tsien Wui Marble Factory Ltd (TW) be dismissed. The rationale for this being that in the event that their appeal is unsuccessful they hope that TW will be required to make contribution towards the amount owing to BEA. BEA are pursuing their own appeal against this dismissal.

2. The history and background to the litigation is set out in some detail in Findlay, J's judgment.

3. Very briefly when BEA built their new Bank Headquarters at the beginning of the 1980's P&T were appointed as Architects and Structural Engineers and TW was nominated as the sub contractor for the granite cladding for the building.

4. The cladding on the building failed. There was extensive expert evidence at the trial on the reasons for the failure and the Judge made a finding of fact that the failure was attributable to its faulty design. This finding has not been seriously disputed on this appeal.

P&T appeal

5. In considering this appeal it is necessary to have regard to important concessions which were made by their counsel Mr. Harris in the trial. These were referred to by Findlay, J on p.13 of his judgment.

" (i) Palmer and Turner owed the Bank a duty of care as alleged by it;

(ii) given the nature of the relationship between the Bank and Palmer and Turner, their duty of care extended to not committing acts or omissions which caused economic loss;

(iii) they knew or ought to have known that the damages and defects pleaded might constitute a danger of physical injury to persons or physical damage to properties in the vicinity of the bank building;

(iv) they knew or ought to have known that the damage might expose the Bank to liability to third parties;

(v) they knew or ought to have known that the damage would require remedial works;

(vi) the bank building suffered the damage pleaded;

(vii) Palmer and Turner breached its duty of care to the Bank to produce or procure the design of a fixing system for the cladding that provided adequately for the differential movement between the cladding and the reinforced concrete structure of the Building; and

(viii) (subject to the defences and issues mentioned below) they are liable to compensate the Bank for the costs of such method of remedying the Damage as the Court should find was appropriate."

6. Mr. Harris then went on to formulate what in his view were the remaining outstanding issues in the litigation in as much as this related to this part of the litigation.

"(i) What acts or omissions of either Tsien Wui or Palmer and Turner were the cause of the damage?

(ii) The date when the Bank's cause of action arose for the purposes of determining -

(a) when the limitation period expired under section 4 of the Limitation Ordinance; and

(b) whether section 31 of the Limitation Ordinance applies to the Bank's claim?

(iii) If section 31 of the Limitation Ordinance does apply to the Bank's claim when did the Bank have knowledge of the claim for the purposes of the section 31(5)?

(iv) The amount of Palmer and Turner's liability (subject to the limitation defences)."

7. As will be appreciated from this the important issue which had to be determined by the Judge was whether BEA's claims were time barred. In this connection their writ against TW was issued on 20th June 1994 and the one against P&T was issued on 25th June 1996.

8. Before considering the law applicable to this it is necessary to have regard to the evidence which was before the Judge and his findings of fact.

9. Mr. Michael Thomas, S.C. for P&T submitted that when considering the Judge's findings it was necessary to bear in mind that it is evident from the Judgment that the Judge proceeded upon the basis that the burden of proof for establishing that there was a time limitation lay upon the Defendant. He argued that this was a misconception of the position. This burden had to be discharged by the Plaintiff who had to prove that his cause of action was not time barred. He particularly placed reliance upon the passage at p.30 of the Judgment of Ralph Gibson LJ in London Congregational Union v. Harriss & Harriss [1988] 1 ALL ER 15:

"It seems to me that on this part of the case the submissions of counsel for the defendants are correct and that the point is decided in favour of the defendants by the Court of Appeal in Cartledge's case. The point was not argued in the House of Lords but no doubt was cast on the correctness of the decision. The onus lies on the plaintiffs to prove that their cause of action accrued within the relevant period before the writ. The judge, therefore, not having been referred to the authority, misdirected himself. By a respondent's notice the plaintiffs have contended that if the judge had directed himself properly in accordance with the law laid down in Cartledge's case on the evidence he must have come to the same conclusion. This contention was based on the passage in Lord Pearce's speech, cited above, in which Lord Pearce added a gloss to what had been said in the Court of Appeal by Harman and Pearson LJJ. Counsel for the plaintiffs argued that the plaintiffs had proved 'an accrual-of damage' within the six-year period before the writ by proving the existence of damage within that period and that, on tendering that proof, the burden passed to the defendants 'to show that the apparent accrual of a cause of action is misleading and that in reality the cause of action accrued at an earlier date'. I cannot accept this contention. It confuses the existence, or continued existence, of damage or its consequences with accrual of damage, which is the coming into existence of damage. In my judgment, the burden on a plaintiff is to show that, on the balance of probabilities, his cause of action accrued, ie came into existence, on a day within the period of limitation. If he shows that, then the evidential burden would, as stated by Lord Pearce, pass to the defendants to show, if they can, that the apparent accrual of the plaintiffs' cause of action was misleading etc. On the facts of this case, as is apparent from the passage which I have cited from the judgment of the judge, the plaintiffs did not tender evidence which showed that on the balance of probabilities the damage had been caused to the plaster within the period of six years from the writ. The evidence was equally consistent with damage having been caused outside that period. The plaintiffs therefore failed to prove that the cause of action in respect of the damp-proofing had accrued within the relevant period and, in my judgment, therefore the defendants are entitled to succeed on that part of their appeal. I would wish to hear counsel as to the effect on the award of damages of allowing the appeal to that extent."

10. Mr. John Scott, S.C. for BEA's reply to this was that the Judge had been correct in his analysis of the position. He mainly relied upon the Victorian case of Pullen v. Gutteridge & another [1993] 1VR 15 p.27. The Full Bench said at p.73 of the report:

"...There is, however, a good deal of authority supporting the view that the plaintiff bears the onus of proving that time has not run even in cases where the statute merely bars the remedy. Some of the decisions that have been cited for this view are found on examination to be explicable as concerned with the need for the plaintiff to prove that the case falls within an exception allowed by the statute. So Beale v. Nind (1821) 4 B. & Ald. 568; 106 E.R. 1044, a case of alleged acknowledgement, and O'Connor v. Isaacs [1956] 2 Q.B. 288, at p. 364, per Romer L.J. can be explained on this basis. But there are other cases which cannot be explained in this way and which support the proposition that it is the plaintiff who bears the burden of proving that his cause of action arose within the limitation period. The first is Hurst v. Parker (1817) 1 B. & Ald. 92; 106 E.R. 34 and the second is Wilby v. Henman (1834) 2 Cr. & M. 658; 149 E.R. 924. Then there is Darley Main Colliery Co. v. Mitchell (1886) 11 App. Cas. 127, at p. 135, in the speech of Lord Blackburn; his Lordship cited no authority. In Cohen v. Cohen (1929) 42 C.L.R. 91, Dixon J. was unable to satisfy himself whether the cause of action had accrued within the limitation period but held that there was an absolute acknowledgement sufficient to take the cause of action outside the statute of limitations. On the question of the burden of proof with regard to the time at which the cause of action accrued his Honour said this, at p. 97: 'Upon issue taken on a plea of actio non accrevit infra sex annos it was held that the onus of proof lay upon the plaintiff (Hurst v. Parker (1817) 1 Barn. & Ald.92; Wilby v. Henman (1834) 2 Cr. & M. 658). So, too, on a plea of non assumpsit infra sex annos (per Bayley J. in Beale v. Nind (1821) 4 Barn. & Ald. 568, at p. 571).'

As we have said, the case of Beale v. Nind is in our respectful opinion to be explained as concerned with the need for the plaintiff to prove that the case falls within an exception allowed by the statute if he wishes to escape from its operation. We return later to the other two decisions cited, Hurst v. Parker and Wilby v. Henman, and suggest that they should both be viewed as founded upon a misapprehension concerning the general rule for determining on whom the burden of proof of an issue lay. Further authority for the view that it is the plaintiff who bears the burden of proving that his claim is not statute-barred is what was said in Cartledge v. E. Jopling & Sons Ltd. [1962] 1 Q.B. 189, at p. 202, by Harman L.J. and, at p. 208, by Pearson L.J. There is, in addition, the authority of the House of Lords, for on the appeal in that case ([1963] A.C. 758, at p. 784) Lord Pearce spoke of the 'initial onus' as being on the plaintiff to prove that his cause of action was not statute-barred and of the passing of a burden to the defendant once the plaintiff has proved the apparent accrual of a cause of action within the limitation period. This speech was concurred in by Lord Reid, at p. 771, by Lord Morris, at p. 775 and possibly by Lord Evershed, at p. 773. Against what was said in Cartledge v. E. Jopling & Sons Ltd. is to be set the citing by Lord Fraser of Tullybelton with apparent approval in the later case of Pirelli General Cable Works Ltd v. Oscar Faber & Partners [1983] 2 A.C. 1, at p. 18, of a passage from the speech of Lord Salmon in Anns v. Merton London Borough Council [1978] A.C. 728, at p. 771. This passage accepts that it is for the defendant to show that the claim is statute-barred, unless Lord Salmon's observations can be explained on the basis, in accordance with what Lord Pearce said in Cartledge, that the plaintiff had proved an accrual of damage within the six years, so as to cause a burden to pass to the defendant. For in Anns cracking had occurred about two years before the issue of the writ. On the other hand, in Pirelli itself the cracking took place more than six years before the issue of the writ, so that this explanation is not possible here. Counsel for the defendants there conceded (at p. 3) that their clients bore the onus of proving that the damage occurred outside the limitation period, and, at p. 12, Lord Fraser dealt with the trial judge's finding in terms which appeared to accept that the defendants did carry the onus. His Lordship was in effect speaking for the House of Lords.

In the cases which support the view that the plaintiff bears the burden the matter is often dealt with by way of obiter dictum only and in none of them is there any substantial discussion of the question. The body of authority is, however, such as to require respectful attention and in particular weight must be given to what was said in the House of Lords in Cartledge v. E. Jopling & Sons Ltd. As regards Cohen v. Cohen, the words used by Dixon J. ('it was held that') leave us in doubt whether his Honour intended to endorse the proposition that the onus of proof lay on the plaintiff. With all respect to those who have thought otherwise, we cannot accept that it is the plaintiff who bears the burden. It is for a plaintiff to plead and prove the elements of his cause of action. If the accruing of the cause of action in time is no part of the cause of action, the plaintiff need not allege or prove it. We refer to Coburn v. Colledge [1897] 1 Q.B. 702; the learned article by Lowenstern, in (1928) 2 A.L.J. 191; Tozer Kemsley & Millbourn (A'asia) Pty. Ltd. v. Collier's Interstate Transport Service Ltd. (1956) 94 C.L.R. 384, at pp. 407-8, per Fullagar J. and, at p. 408, per Kitto J.; Young v. Queensland Trustees Ltd. (1956) 99 C.L.R. 560 and Marginson v. Ian Potter & Co. (1976) 136 C.L.R. 161, at p. 168; 11 A.L.R. 64; 50 A.L.J.R. 735, at p. 737, per Gibbs and Mason JJ. The last-mentioned case contains an observation that it is for the defendant to plead and prove non-compliance with the requirements of the statute of frauds; the approach in Dawkins v. Lord Penrhyn (1878) 4 App. Cas. 51 and other cases suggests that the principle should be the same for both the statute of frauds and a statute of limitations which bars the remedy."

11. As will be seen from these respective commentaries much depends upon the view which is taken of the nature of the claim which is being pursued. For reasons which will be given later in this judgment I take the view that the Bank's claim is for economic loss and this being the case I favour the conclusion which is reached by Ralph Gibson LJ. As a consequence of this it is necessary to exercise a large measure of caution in considering any findings of fact by the Judge in the present case.

12. The Judge dealt with the evidence relating to limitation at p.22 onwards in the judgment.

13. The cladding work was completed in July 1982. The Judge went on to consider the evidence of marks appearing on the surface of the granite panels. This was in 1984 & 1985. The marks did not at first seem to occasion any particular concern. It was not until 1989 that a survey was undertaken by Mr. Michael TANG of Hong Kong Land who were at that time the managers of the building. Mr. TANG did not have any specialised expertise in cladding. He noted some clipping and discolouration of panels but his overall conclusion was that there were no major or significant defects observed. Some minor work was undertaken as a result of this in December 1989 & September 1990. One panel was replaced in 1992 and another in 1993.

14. It was not until June 1993 that a letter was received from Bolton Construction Co. Ltd. which referred to extensive damage and the necessity to either replace the granite panels at a cost of about $40 million or effect remedial measures which would cost about $5.6 million. It was at this time that more intensive investigations were undertaken which revealed the full nature and extent of the problems.

15. Mr. Thomas submitted that it was clear from the Judge's analysis of the evidence that he had focused his attention upon the physical manifestations of damage which resulted from defective design and the extent to which this became apparent to BEA and those advising them or acting on their behalf. What he had not done was to consider the matter on the basis that from the handing over of the cladding work in July 1982 there was in existence defective work which did not comply with the contractual requirements.

16. It is next necessary to consider the law on limitation. The sections of the Limitation Ordinance, Cap. 347 which are relevant to this case are S. 4, S. 31 & S. 38A.

17. The case has to be considered within this framework.

18. Mr. Thomas drew our attention to the significant developments which have taken place over the last 20 years on this subject. To illustrate these developments he referred in particular to six House of Lords or Privy Council cases and one English Court of Appeal case.

1. Anns v. Merton London Borough Council [1978] AC 728

19. None of the claims made by the Owners of houses which had faulty foundations which had been inspected by the council were statute barred as it was held that the cause of action only arose when the state of the building was such that there was present or imminent danger to the health or safety of the persons occupying it.

20. In this connection the cracks which had appeared on the buildings should not be treated as physical damage.

2. Pirelli General Cable Works Ltd. v. Oscar Faber and Patners [1983] 2 AC 1.

21. In this case cracks had started to appear on a chimney which had formed part of an extension. The Defendants were the Architects who were being sued for the negligent design of the extension. It was held that the discoverability of the cracks was not a relevant consideration. Time began to run when the cracks first appeared. Lord Frazer considered Anns case at p.17 and analysed the position in this way.

"Counsel for the respondents argued that in Anns v. Merton London Borough Council [1978] A.C. 728, Lord Wilberforce, and the other members of this House who agreed with his speech, had approved of the observations in Sparham-Souter to the effect that the discoverability date was the date when the cause of action accrued. But I do not so read my noble and learned friend's speech. At p. 750 he simply narrated the conflict between the cases of Dutton v. Bognor Regis Urban District Council [1972] 1 Q.B. 373 and Sparham-Souter without indicating any preference. He posed the question 'When does the cause of action arise?' and he answered it as follows, at p. 760:

'In my respectful opinion the Court of Appeal was right when, in Sparham-Souter v. Town and Country Developments (Essex) Ltd. [1976] Q.B. 858 it abjured the view that the cause of action arose immediately upon delivery, i.e., conveyance of the defective house. It can only arise when the state of the building is such that there is present or imminent danger to the health or safety of persons occupying it.'

The only express approval in that passage is to the Court of Appeal's decision that the cause of action did not arise immediately the defective house was conveyed. His Lordship did not say, nor in my opinion did he imply, that the date of discoverability was the date when the cause of action accrued. The date which he regarded as material (when there is 'present or imminent danger to . . . health or safety') was, of course, related to the particular duty resting upon the defendants as the local authority, which was different from the duty resting upon the builders or architects, but I see nothing to indicate that Lord Wilberforce regarded the date of discoverability of the damage as having any relevance. He was not considering the question of discoverability, no doubt because the main issue in the appeal by the time it reached this House was whether any duty at all was incumbent on the local authority: see p.751A. Three other noble and learned Lords expressed agreement with Lord Wilberforce. Only Lord Salmon delivered a separate reasoned speech and he clearly considered that the cause of action could arise before damage was discovered or discoverable, although he recognised that proof might be difficult. He said, at p. 771B: 'Whether it is possible to prove that damage to the building had occurred four years before it manifested itself is another matter, but it can only be decided by evidence.' (Emphasis added). Neither Lord Salmon, nor the other Lords, seems to have considered that he was dissenting from the majority view on that matter. In these circumstances I do not think that the majority in Anns are to be taken as having approved the discoverability test applied in Sparham-Souter."

22. It is significant to add that later in his speech (at p. 18) Lord Fraser went on to express the view that a negligent architect should not be viewed in the same way as a negligent solicitor unless the building in question was "doomed from the start". It is by no means clear what this meant or what was the rationale of this view.

23. However what is clear is that Lord Fraser did not have the concept of economic loss in mind when he expressed this view.

24. There is a further aspect of this case which is relevant to our deliberations. It was generally considered that the consequences of the case led to a highly unsatisfactory situation. As a result legislation was introduced in an attempt to mitigate the effect of Pirelli. This was achieved by the Latent Damage Act 1986 which provided for S. 14A of the Limitation Act 1980. This amendment was adopted in Hong Kong in the form of S. 31 & S.38A of our Ordinance.

"31. Special time limit for negligence actions where facts relevant to cause of action are not known at date of accrual

(1) This section applies to any action for damages for negligence, other than one to which section 27 applies, where the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both-

(a) the knowledge required for bringing an action for damages in respect of the relevant damage; and

(b) a right to bring such an action,

(referred to in this section as the 'date of knowledge') falls after the date on which the cause of action accrued.

(2) The period of limitation prescribed by section 4(1) in respect of actions founded on tort shall not apply to an action to which this section applies.

(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4).

(4) That period is either-

(a) 6 years from the date on which the cause of action accrued; or

(b) 3 years from the date of knowledge, if that period expires later than the period mentioned in paragraph (a).

(5) In subsection (1) 'the knowledge required for bringing an action for damages in respect of the relevant damage' means knowledge -

(a) of such facts about the damage in respect of which damages are claimed as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment;

(b) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence;

(c) of the identity of the defendant; and

(d) if it is alleged that the act or omission was that of a person other than the defendant, of the identity of that person and the additional facts supporting the bringing of an action against the defendant.

(6) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (1).

(7) For the purposes of this section or section 33 a person's knowledge includes knowledge which he might reasonably have been expected to acquire-

(a) from facts observable or ascertainable by him; or

(b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek,

but a person shall not be taken by virtue of this subsection or section 33 to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice."

"38A. Transitional provisions relating to 1991 amendments

(1) The time for bringing proceedings in respect of a cause of action-

(a) to recover any land;

(b) to redeem mortgaged land;

(c) to recover any principal sum of money secured by a mortgage or other charge on property, or to recover proceeds of the sale of land; or

(d) to foreclose on mortgaged personal property, which accrued before 1 July 1991 shall, if it has not then already expired, expire at the time when it would have expired apart from the provisions of the Limitation (Amendment) Ordinance 1991 (31 of 1991).

(2) Nothing in section 22A, 31 or 32 shall-

(a) enable any action to be brought which was barred by this Ordinance before 1 July 1991; or

(b) affect any action commenced before I July 1991.

(3) Subject to subsection (2), sections 22A, 31 and 32 shall have effect in relation to causes of action accruing before, as well as in relation to causes of action accruing on or after, 1 July 1991."

25. It will be noted from these sections that if the facts relevant to the cause of action were not known at the date of the accrual of the right of action the time limit would have been 1st July 1985. This was a fall back position taken by Mr. Thomas if he was unable to establish a claim for economic loss.

3. London Congregational Union v. Harriss & Harriss [1988] 1 ALL ER 15

26. The main significance of this case was that although it followed Pirelli Sir Denys Buckley, who was in a minority, had the foresight to consider the claim which was being made in terms of economic loss. He said at p. 33:

"In the present case the contractual duty of the defendants as architects of the new church and hall must undoubtedly have been to design a building complete with all necessary services, suitable and adequate for those uses to which it was intended to be put. In particular the defendants were bound to provide a drainage system capable of accepting and disposing of all foreseeable volumes of water. Their common law duty as expert advisers was to use due care and skill to ensure that whatever drainage system they devised would be adequate to discharge that function. They failed to do so, as subsequent experience showed. By the time when the defect became apparent any action in contract had become statute-barred. Consequently the plaintiffs sued in negligence.

When the building was handed over the plaintiffs acquired a building which incorporated an existing physical defect: they did not get what the defendants were under a duty to ensure that they would get. It may be said to have been a latent defect, because it may not have been easily discernible, but it was an existing physical defect, not merely a risk that a physical defect might develop in the future. If before any flooding occurred the plaintiffs had become aware of the defect, they could, in my judgment, have thereupon sued in negligence without awaiting the occurrence of physical damage. It would have become demonstrable that the plaintiffs had suffered economic damage in consequence of the defendants' negligence in the form of the expense to which they would necessarily be put to remedy the defect, or in the form of the reduction of the realisable value of the property. The plaintiffs, in my judgment, unknowingly suffered that economic damage when the building was handed over to them. Their ignorance in this respect, however, would not stop time from running from that time (see Cartledge v E Jopling & Sons Ltd [1963] 1 All ER 341, [1963] AC 758). So, if I am right in thinking that the plaintiffs suffered damage when the building was handed over, their cause of action accrued then and became statute-barred six years thereafter."

4. D & F Estate Ltd. v. Church Commrs For England [1989] AC 177

27. This case was stated to be the beginning of the counter revolution referred to by Mr. Thomas. The court was prepared to consider the application of Donoghue v. Stevenson [1932] AC 562 to the liability of a builder of a permanent structure.

28. Lord Bridge had this to say at p. 206:

"These principles are easy enough to comprehend and probably not difficult to apply when the defect complained of is in a chattel supplied complete by a single manufacturer. If the hidden defect in the chattel is the cause of personal injury or of damage to property other than the chattel itself, the manufacturer is liable. But if the hidden defect is discovered before any such damage is caused, there is no longer any room for the application of the Donoghue v. Stevenson [1932] A.C. 562 principle. The chattel is now defective in quality, but is no longer dangerous. It may be valueless or it may be capable of economic repair. In either case the economic loss is recoverable in contract by a buyer or hirer of the chattel entitled to the benefit of a relevant warranty of quality, but is not recoverable in tort by a remote buyer or hirer of the chattel.

If the same principle applies in the field of real property to the liability of the builder of a permanent structure which is dangerously defective, that liability can only arise if the defect remains hidden until the defective structure causes personal injury or damage to property other than the structure itself. If the defect is discovered before any damage is done, the loss sustained by the owner of the structure, who has to repair or demolish it to avoid a potential source of danger to third parties, would seem to be purely economic. Thus, if I acquire a property with a dangerously defective garden wall which is attributable to the bad workmanship of the original builder, it is difficult to see any basis in principle on which I can sustain an action in tort against the builder for the cost of either repairing or demolishing the wall. No physical damage has been caused. All that has happened is that the defect in the wall has been discovered in time to prevent damage occurring. I do not find it necessary for the purpose of deciding the present appeal to express any concluded view as to how far, if at all, the ratio decidendi of Anns v. Merton London Borough Council [1978] A.C.728 involves a departure from this principle establishing a new cause of action in negligence against a builder when the only damage alleged to have been suffered by the plaintiff is the discovery of a defect in the very structure which the builder erected."

29. Shortly prior to this (at. P. 205) Lord Bridge rationalised economic loss on the basis that the owner of the building had not got the benefit of what he had bargained for.

5. Murphy v. Brentwood DC [1991] AC 398

30. This appeal was heard by a seven man court. It was an extremely important case. It had the effect of completely changing the law on this subject. It was held that Anns and cases which had followed it were no longer good authority. More particularly so far as the present case is concerned it established that Anns was a false trail.

31. It recognised that where a special relationship existed there was a duty of care which could be based on the Hedley Byrne principle which led to liability for economic loss.

32. What was perhaps most significant in reading all of speeches is the nature and extent of the criticisms of Anns and the reference to all of the problems and difficulties which arose from the case. The general thread of the criticisms was that the uncertainties which inevitably were encountered had resulted in a proliferation of cases where artificial distinctions had had to be made to accommodate the principles which had been propounded.

33. There can be no doubt that their Lordships entirely rejected Anns principles.

6. Henderson v. Merrett Syndicates Ltd. [1995] 2 AC 145

34. In this case the House of Lords considered the question of Agents owing a duty of care in Tort. This was in the context of litigation involving Lloyds Names. Consideration was given to the situation where there were concurrent rights in Contract and Tort. Of particular relevance to this litigation consideration was given to the circumstances when economic loss may flow from the negligent performance of duty by a party with whom a special relationship exists. Much assistance in this connection can be derived from a passage from the speech of Lord Goff at p. 180 of the report.

"From these statements, and from their application in Hedley Byrne, we can derive some understanding of the breadth of the principle underlying the case. We can see that it rests upon a relationship between the parties, which may be general or specific to the particular transaction, and which may or may not be contractual in nature. All of their Lordships spoke in terms of one party having assumed or undertaken a responsibility towards the other. On this point, Lord Devlin spoke in particularly clear terms in both passages from his speech which I have quoted above. Further, Lord Morris spoke of that party being possessed of a 'special skill' which he undertakes to 'apply for the assistance of another who relies upon such skill.' But the facts of Hedley Byrne itself, which was concerned with the liability of a banker to the recipient for negligence in the provision of a reference gratuitously supplied, show that the concept of a 'special skill' must be understood broadly, certainly broadly enough to include special knowledge. Again, though Hedley Byrne was concerned with the provision of information and advice, the example given by Lord Devlin of the relationship between solicitor and client, and his and Lord Morris's statements of principle, show that the principle extends beyond the provision of information and advice to include the performance of other services. It follows, of course, that although, in the case of the provision of information and advice, reliance upon it by the other party will be necessary to establish a cause of action (because otherwise the negligence will have no causative effect), nevertheless there may be other circumstances in which there will be the necessary reliance to give rise to the application of the principle. In particular, as cases concerned with solicitor and client demonstrate, where the plaintiff entrusts the defendant with the conduct of his affairs, in general or in particular, he may be held to have relied on the defendant to exercise due skill and care in such conduct.

In subsequent cases concerned with liability under the Hedley Byrne principle in respect of negligent misstatements, the question has frequently arisen whether the plaintiff falls within the category of persons to whom the maker of the statement owes a duty of care. In seeking to contain that category of persons within reasonable bounds, there has been some tendency on the part of the courts to criticise the concept of 'assumption of responsibility' as being 'unlikely to be a helpful or realistic test in most cases' (see Smith v. Eric S. Bush [l990] 1 A.C. 831, 864 - 865, per Lord Griffiths; and see also Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605, 628, per Lord Roskill). However, at least in cases such as the present, in which the same problem does not arise, there seems to be no reason why recourse should not be had to the concept, which appears after all to have been adopted, in one form or another, by all of their Lordships in Hedley Byrne [1964] A.C. 465 (see, e.g., Lord Reid, at pp.483, 486 and 487; Lord Morris (with whom Lord Hodson agreed), at p.494; Lord Devlin, at pp. 529 and 531; and Lord Pearce at p.538). Furthermore, especially in a context concerned with a liability which may arise under a contract or in a situation 'equivalent to contract,' it must be expected that an objective test will be applied when asking the question whether, in a particular case, responsibility should be held to have been assumed by the defendant to the plaintiff: see Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605, 637, per Lord Oliver of Aylmerton. In addition, the concept provides its own explanation why there is no problem in cases of this kind about liability for pure economic loss; for if a person assumes responsibility to another in respect of certain services, there is no reason why he should not be liable in damages for that other in respect of economic loss which flows from the negligent performance of those services. It follows that, once the case is identified as falling within the Hedley Byrne principle, there should be no need to embark upon any further enquiry whether it is 'fair, just and reasonable' to impose liability for economic loss - a point which is, I consider, of some importance in the present case. The concept indicates too that in some circumstances, for example where the undertaking to furnish the relevant service is given on an informal occasion, there may be no assumption of responsibility; and likewise that an assumption of responsibility may be negatived by an appropriate disclaimer. I wish to add in parenthesis that, as Oliver J. recognised in Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch. 384, 416F - G (a case concerned with concurrent liability of solicitors tort and contract, to which I will have to refer in a moment), an assumption of responsibility by, for example, a professional man may give to liability in respect of negligent omissions as much as negligent acts of commission, as for example when a solicitor assumes responsibility for business on behalf of his client and omits to take a certain step, such as service of a document, which falls within the responsibility so assumed by him."

35. These observations by Lord Goff need also to be considered in the light of his comments at p.185 where he had in mind their application to professional advisors such as Architects & Solicitors.

"In the result, the courts in this country have until recently grappled with the problem very largely without the assistance of systematic academic study. At first, as is shown in particular by cases concerned with the liability for solicitors' negligence, the courts adopted something very like the French solution, holding that a claim against a solicitor for negligence must be pursued in contract, and not in tort (see, e.g., Bean v. Wade (1885) 2 T.L.R. 157); and in Groom v. Crocker [1939] 1 K.B. 194, this approach was firmly adopted. It has to be said, however, that decisions such as these, though based on prior authority, were supported by only a slender citation of cases, none of great weight; and the jurisprudential basis of the doctrine so adopted cannot be said to have been explored in any depth. Furthermore when, in Bagot v. Stevens Scanlan & Co. Ltd. [1966] 1 Q.B. 197, Diplock L.J. adopted a similar approach in the case of a claim against a firm of architects, he felt compelled to recognise (pp. 204 - 205) that a different conclusion might be reached in cases 'where the law in the old days recognised either something in the nature of a status like a public calling (such as common carrier, common innkeeper, or a bailor and bailee) or the status of master and servant.' To this list must be added cases concerned with claims against doctors and dentists. I must confess to finding it startling that, in the second half of the 20th century, a problem of considerable practical importance should fall to be solved by reference to such an outmoded form of categorisation as this.

I think it is desirable to stress at this stage that the question of concurrent liability is by no means only of academic significance. Practical issues, which can be of great importance to the parties, are at stake. Foremost among these is perhaps the question of limitation of actions. If concurrent liability in tort is not recognised, a claimant may find his claim barred at a time when he is unaware of its existence. This must moreover be a real possibility in the case of claims against professional men, such as solicitors or architects, since the consequences of their negligence may well not come to light until long after the lapse of six years from the date when the relevant breach of contract occurred. Moreover the benefits of the Latent Damage Act 1986, under which the time of the accrual of the cause of action may be postponed until after the plaintiff has the relevant knowledge, are limited to actions in tortious negligence. This leads to the startling possibility that a client who has had the benefit of gratuitous advice from his solicitor may in this respect be better off than a client who has paid a fee. Other practical problems arise, for example, from the absence of a right to contribution between negligent contract-breakers; from the rules as to remoteness of damage, which are less restricted in tort than they are in contract; and from the availability of the opportunity to obtain leave to serve proceedings out of the jurisdiction. It can of course be argued that the principle established in respect of concurrent liability in contract and tort should not be tailored to mitigate the adventitious effects of rules of law such as these, and that one way of solving such problems would no doubt be to rephrase such incidental rules as have to remain in terms of the nature of the harm suffered rather than the nature of the liability asserted (see Tony Weir, XI Int.Encycl.Comp.L. ch.12, para. 72). But this is perhaps crying for the moon; and with the law in its present form, practical considerations of this kind cannot sensibly be ignored."

36. This latter passage provided some justification for Mr. Thomas to cite as authority some of the cases involving professional negligence of solicitors which will be considered later where it is almost invariably the case that even if neither the solicitor nor the client is aware of the act of negligence the right of action is deemed to accrue at the time when the professional services were rendered.

37. A further case referred to by Mr. Thomas was Invercargill City Council v Hamlin [1996] AC 634.

38. This Privy Council case is an illustration of the alternative route which has been adopted running to a large extent counter to Murphy. The appeal which was based upon New Zealand Law proceeded upon the basis that Anns case was essentially still good law. It is of importance to this case as both Findlay, J and Mr. Scott place heavy reliance upon it. At p.18 of his judgment Findlay, J refers to the case and to principles drawn from Pirelli and from the Council of the Shire of Sutherland v. Heyman [1985] 157 CLR 424.

39. It is apparent from the speeches of the Law Lords that they accept that in New Zealand and Australia the law has developed in a different way. There is a reversion back to the principle that where there is a latent defect in a building "the element of loss or damage which is necessary to support a claim for economic loss in tort does not exist so long as the market value of the property is unaffected."

40. Mr. Thomas submitted that Invercargill, and the Australian and Canadian cases adopting a similar rationale had no application whatever to the present case.

41. Mr. Thomas went on to submit that the professional negligence cases also assisted him. He argued that there was no logical reason to differentiate them from claims being made for economic loss particularly where as in the present case the services which had been performed by P&T had been of a professional nature. He referred to Forster v. Outred & Co. [1982] 1 WLR 86 and DW Moore & Co. Ltd. v. Ferrier [1988] 1 ALL ER 400.

42. The latter case is of particular assistance as Bingham L.J. (as he then was) considered both the law of contract and tort at p.411 and the logic of causes of action arising at the same time.

"The matter may be tested. It is common ground, on the assumption that the plaintiffs' pleaded case is correct, that the defendants were in breach of contract when they negligently advised and settled documents in 1971s and 1975. A cause of action then arose. Suppose, per impossible, that the plaintiffs had sued at once and before the later difficulties with Mr Fenton arose. They would have been bound to succeed. If of opinion that the plaintiffs had suffered no damage, the judge would have awarded them nominal damages of 40s or its modern equivalent. But it seems to me plain that the judge would not have done that on these facts. He would have assessed as best he could on the available evidence the loss fairly and reasonably flowing in the usual course of things from the defendants' breach of contract, reaching a figure that might have been large or small but would not have been nominal. I think that the plaintiffs were in argument inclined to accept that. If, in a contractual claim for negligence, the court would have awarded other than nominal damages, l do not see how it can be said that an action in tort based on the same negligence would have been bound to fail for want of any damage as an essential ingredient of the cause of action.

I do not think that there is, on the straightforward application of familiar principles, any escape from these conclusions. I am not therefore surprised to find that other courts have also reached the same conclusions (see Forster v Outred & Co (a firm) [1982] 2 All ER 753, [1982] 1 WLR 86, Melton v Walker & Stanger (1981) 125 SJ 861, Baker v Ollard & Bentley (1982) 126 SJ 593 and Aikman v Hallett & Co (20 March 1987, unreported). It is pointed out, necessarily correctly, that the facts of those cases are different from those of the present, and in some the damage suffered by the claimant at the time of the execution of the agreement in question is perhaps more obvious than in the present case. Each of the cases is, however, in my view inconsistent in principle with the plaintiffs' contention in this case that they suffered no damage in 1971 and 1975.

I agree with what Neill LJ has said concerning Pirelli General Cable Works Ltd v Oscar Faber & Partners (a firm) [1983] 1 All ER 65, [1983] 2 AC 1 and Dove v Banhams Patent Locks Ltd [1983] 2 All ER 833, [1983] 1 WLR 1436, the cases on which the plaintiffs principally rely. As I understand them, those cases turn on special principles related to their own peculiar subject matter. If so, they do not help to resolve this appeal. But if in truth all negligence claims in tort (excluding personal injuries) are governed by the same principles, then those cases do not compel and cannot justify a conclusion that the plaintiffs suffered no damage in 1971 and 1975.

This case graphically illustrates the 'wholly unreasonable result' (as Lord Reid called it in Cartledge v Jopling & Sons Ltd [1963] 1 All ER 341, [1963] AC 758) which the law was liable to produce until the 1986 Act. It will be poor solace to the plaintiffs that this anomaly has now been cured, or at any rate mitigated. But we must apply the law as it is, and I agree that the appeal must be dismissed."

43. It is significant to add that the Hong Kong Courts have followed a similar route. The Court of Appeal held in Ko Ming Bor and Others v. Lo & Lo Unreported being CA 41/96 that where solicitors had been negligent the cause of action arose at the time when the professional services were rendered. The judgment in that case was delivered in October 1996.

44. Mr. Thomas also referred as to the recent case of Nykredit Mortgage Bank Plc v. Edward Erdman Group Ltd. No. 2 [1997] 1 WLR 1627. This was a case where a Bank sustained a loss as a consequence of the negligent valuation of property by a valuer. Lord Nicholls commented on the practical difficulties which are encountered in some detail on p.1632.

"Indeed, for the cause of action to arise only when the lender realises his security would be a highly unattractive proposition. It would mean that, however obvious it may be that the lender will not recover his money, he cannot start proceedings. He must wait until he manages to sell the property, a process which may be protracted. This would be a surprising stance for the law to take. It would be all the more surprising when one has in mind that a lender's cause of action against his negligent valuer for breach of contract, as distinct from a claim in tort, arises when the negligent valuation is given. If disaster were evident and the lender were to sue his valuer for breach of contract without waiting until he had realised his security, it is inconceivable that the court would award only nominal damages. The court would do its best to assess the loss. This prompted the trenchant observation of Bingham L.J. in D. W. Moore & Co. Ltd v. Ferrier [1988] 1 W.L.R. 267, 280:

'If, in a contractual claim for negligence, the court would have awarded other than nominal damages, I do not see how it can be said that an action in tort based on the same negligence would have been bound to fail for want of any damage as an essential ingredient of the cause of action.'

As Mr. Briggs submitted, no accountant or prospective buyer, viewing the loan book of a commercial lender, would say that the shortfall in security against outstanding loans to defaulting borrowers did not represent a loss to the lender merely because the securities had yet to be sold. Realisation of the security does not create the lender's loss, nor does it convert a potential loss into an actual loss. Rather, it crystallises the amount of a present loss, which hitherto had been open to be aggravated or diminished by movements in the property market.

I can see no necessity for the law to travel the commercially unrealistic road. The amount of a plaintiff's loss frequently becomes clearer after court proceedings have been started and while awaiting trial. This is an everyday experience. There is no reason to think that the approach I have spelled out will give rise to any insuperable difficulties in practice. In their practical conduct of litigation courts are well able to ensure that assessments of damages are made in a sensible way. It is not necessary, in order to achieve a sensible and fair result, to go so far asserting that the plaintiff has no cause of action, and hence may not issue a writ, until the assessment can be made with the degree of precision that accompanies a realisation of the security. Further, within the bounds of sense and reasonableness the policy of the law should be to advance, rather than retard, the accrual of a cause of action. This is especially so if the law provides parallel causes of action in contract and in tort in respect of the same conduct. The disparity between the time when these parallel causes of action arise should be smaller, rather than greater."

45. It was Mr. Thomas' primary contention that BEA had a claim for economic loss at around the time when the cladding was completed and in any event no later than when the final certificates for the work were issued.

46. Accordingly the claim being made by BEA against P&T was time barred and Findlay, J had erred in holding that the claim could still be maintained.

47. Mr. Scott contended that following the transfer of sovereignty there was no good reason why any preference should be accorded to U.K. decisions rather than the decisions of Commonwealth Courts. This would be in conformity with Article 160 of the Basic Law.

48. As indicated earlier he placed great reliance upon Invercargill and the principle laid down in the case that where there is a latent defect in a building a claim for economic loss does not exist in law so long as the market value of the building remains unaffected.

49. This was of great importance in this case. Mr. Scott submitted that his position had been prejudiced as a result of the different approach which was being adopted in the appeal to the way the case had been conducted before Findlay, J. In the trial the case had generally proceeded upon the basis that the defects in the cladding had been latent defects. The Judge had not made a specific finding of fact on this although it could be argued that this was implicit in his overall findings. However in the appeal Mr. Thomas had contended when arguing his fall back position that the defects were patent defects. He pointed out that it would have been self evident to any qualified observer of the cladding that there were not 13 mm gaps on every floor as was laid down in CP 298.

50. This was a fatally flawed submission. One of the facts which had been agreed amongst all the Experts at the trial was that CP 298 was not an absolute requirement even though it was referred to in the contract because of the objects of the code could be achieved by alternative means that would be acceptable. The matter was even more complicated than that. As the movement in the concrete was at its most active in the first two months it could be the case that equivalence could be achieved with lesser tolerances if a period of time had been allowed to elapse before the cladding was installed.

51. There was also the evidence to the effect that considerable practical difficulties were encountered when attempts were made to survey the cladding.

52. A further issue which had not been satisfactorily resolved at the trial was whether there had in fact been any economic loss immediately after the building had been completed. Mr. Scott submitted that certainly in the early stages the defects would not have been readily apparent. If BEA had sold the building at that time there would have been no question of the purchase price being discounted to reflect the cost of reinstating the cladding. The opposite contention was advanced by Mr. Thomas. He argued that it was clearly the case that BEA had not got what it had bargained for namely a defect free cladding system.

53. Mr. Scott made a further submission as to why BEA should be entitled to damages as a fall back position if his main contentions did not find favour. He submitted that on the evidence the defective cladding constituted a danger to members of the public as the building adjoined other buildings and an open area in front was accessible to members of the public. Mr. Scott referred the parallel type of claim for physical damage which Lord Bridge described at p.475 of his speech in Murphy:

"I believe that these principles are equally applicable to buildings. If a builder erects a structure containing a latent defect which renders it dangerous to persons or property, he will be liable in tort for injury to persons or damage to property resulting from that dangerous defect. But if the defect becomes apparent before any injury or damage has been caused, the loss sustained by the building owner is purely economic. If the defect can be repaired at economic cost, that is the measure of the loss. If the building cannot be repaired, it may have to be abandoned as unfit for occupation and therefore valueless. These economic losses are recoverable if they flow from breach of a relevant contractual duty, but, here again, in the absence of a special relationship of proximity they are not recoverable in tort. The only qualification I would make to this is that, if a building stands so close to the boundary of the building owner's land that after discovery of the dangerous defect it remains a potential source of injury to persons or property on neighbouring land or on the highway, the building owner ought, in principle, to be entitled to recover in tort from the negligent builder the cost of obviating the danger, whether by repair or by demolition, so far as that cost is necessarily incurred in order to protect himself from potential liability to third parties."

54. Mr. Scott argued that the Judge had been wrong to dismiss this claim simply on the basis that it was not possible to have two rights of action available at the same time.

55. It is by no means clear to me that there is good authority for the proposition advanced by Lord Bridge. Although it was followed in Morse & Others v. Barratt (Leeds) Ltd. [1992] CON LJ 158 the proposition did not commend itself to Lord Oliver who said at p489 of Murphy:

"My Lords, for the reasons which I endeavoured to state in the course of my speech in D. & F. Estates Ltd. v. Church Commissioners for England [1989] A.C. 177 and which are expounded in more felicitous terms both in the speeches of my noble and learned friends in the instant case and in that of my noble and learned friend, Lord Keith of Kinkel, in Department of the Environment v. Thomas Bates and Son Ltd. [1991] 1 A.C. 499, I have found it impossible to reconcile the liability of the builder propounded in Anns with any previously accepted principles of the tort of negligence and I am able to see no circumstances from which there can be deduced a relationship of proximity such as to render the builder liable in tort for pure pecuniary damage sustained by a derivative owner with whom he has no contractual or other relationship. Whether, as suggested in the speech of my noble and learned friend, Lord Bridge of Harwich, he could be held responsible for the cost necessarily incurred by a building owner in protecting himself from potential liability to third parties is a question upon which l prefer to reserve my opinion until the case arises, although I am not at the moment convinced of the basis for making such a distinction."

56. It would also appear on the facts of the present case to have no application. P&T rendered services as Architects and Surveyors. Their duty of care was to BEA. It did not extend to third parties who might sustain damages as a consequence of negligent professional advice. This alternative claim is not viable.

57. It will be appreciated from all of this that one of the core issues of this appeal is the question as to whether the court should continue to follow the U.K. law on limitation or whether it should develop along similar lines to Commonwealth Countries such as New Zealand, Australia and Canada.

58. In the course of a persuasive submission Mr. Scott drew to our attention a considerable amount of material which suggested that the reasoning in Invercargill was to be preferred to that of the English cases. In particular he referred to an article in the Law Quarterly Review by I.N. Duncan Wallace on the subject which contained references to the views expressed by Lord Coohe. He was strongly of the opinion that the Commonwealth approach had more to commend it.

59. All of this has to be balanced with the advantages of the U.K. approach. It is instructive to consider the speeches of the Law Lords in Murphy when they weighed the consequences which had flowed from Anns case. They concluded that the law had not developed in a way which was conducive of clarity and certainty.

60. What also perhaps more importantly needs to be borne in mind is that when Invercargill was decided the decision was based on New Zealand Law which was different to English Law as there were statutory provisions which had some relevance.

61. In the final analysis we have to decide whether it would be right for us in effect to undertake what has been described in other circumstances as judicial legislation. As stated earlier in this judgment when referring to Ko Ming Bor it was the common law in Hong Kong at the date of the transfer of sovereignty that Murphy and the professional negligence cases were the line of authorities which applied. This remained the law of the H.K.S.A.R.

62. I am not convinced that a compelling case has been made out to justify the court in departing at this time from the English Common Law. I am satisfied that Mr. Thomas's analysis of the law is correct and that BEA had a right of action in tort for economic loss when the construction of the building was completed or shortly thereafter. This being the case their claim against P&T was time barred. The result of this is that P&T's appeal is successful.

BEA's Appeal

63. So far as Findlay, J's judgment was concerned there were 7 Grounds of Appeal in the supplementary notice of appeal lodged by BEA. During the course of the hearing Mr. Scott informed us that he did not propose to argue Grounds 4, 5 & 6. He did not abandon these grounds. However I am satisfied after hearing the submissions of Miss Gladys Li for TW that Mr. Scott was right not to argue the grounds and that they cannot be sustained.

64. That there leaves Grounds 1, 2, 3 and 7. They are as follows:

(1) Having first held (on page 11 line H of the Judgment handed down on 25th June 1997) that the Respondent/First Defendant ('First Defendant') was responsible for the design of the fixing of the granite to the Bank of East Asia Building, the learned Judge erred in law in holding that the First Defendant was not liable for the failure by the First Defendant's independent contractor, Mr Ragaglini, to carry out the design with reasonable skill and care.

(2) The type of work for which the First Defendant was responsible was of an inherently dangerous nature, involving as it did the placement of large and heavy granite panels at height adjacent to a pedestrian walkway in the Central District of Hong Kong Island. The said location was approximate to the boundary of the Plaintiff's site and to areas of pedestrian and vehicular passage. As a matter of policy, the law of Hong Kong should recognise such work as falling within the type of situation which could not found the defence of delegation to an independent contractor to an action sounding in tort.

(3) Further or in the alternative, the learned Judge erred in law in holding (at page 15 line E of the Judgment) that the First Defendant did not provide a guarantee of the design of the cladding system. The provisions of clause 2.15 of the Warranty provided by the First Defendant to the Plaintiff did not contemplate the subsequent execution of a separate document or agreement, the said Warranty being the only contemplated agreement between the Plaintiff and the First Defendant and executed with the express intention of providing privity of contract between the said parties.

(7) Further or alternatively, the learned Judge erred in holding that the Plaintiff's claim in contract against the First Defendant was time-barred. The basis of the said contractual claim was founded upon the Warranty which by express contract extended the statutory period of limitation set forth in ss.4 and 31 Limitation Ordinance CAP 347 and began to run against the Plaintiff only on expiry of the lifetime of the building."

65. It is convenient to consider these grounds together.

66. The Judge's finding of fact in relation to the design for the installation of the cladding was at p.6 of his judgment:

“I am left in no doubt at all that under the contract the parties contemplated that Tsien Wui would be responsible for designing the system of fixing the granite panels to the concrete, and that this system included making proper allowance for movement. I reject the interpretation of Clause 2.15 that seeks to construe it as laying down a standard only for the design of the anchorages, or even only the material from which the anchorages would be made. Clause 2.24 supports the conclusion that Clause 2.15 seeks to impose a standard for the system It speaks of the shop drawings showing 'joints', the 'kind of control and thermal movement joints, the 'kind of pressure relieving joints', and 'jointing systems'. Mr Clayton argues that there is no evidence that the shop drawings were ever submitted with Tsien Wui's tender. This may be so, but nevertheless Cause 2.24 clearly points to the tenderer being responsible for the designing the aspects of the fixing system mentioned.

This, as 1 see it, is the clear meaning of the contract documents: Insofar as they may be relevant, other contemporaneous documents support this conclusion. They show, in my view, that, even if it could be argued that contract documents do not impose a clear obligation on Tsien Wui, it undertook this responsibility during the period leading up to the acceptance of its tender and thereafter."

67. Having made this finding he then went on to hold that TW should not be held liable in negligence because the work had been delegated to Mr. Ragaglini. He did not analyse in any detail the contractual position as he said that he accepted the submissions made by Mr. Scott that the contractual claim was statute barred.

68. There is no doubt in my mind that under the terms of the sub contract between Gammons and TW that TW remained liable for the design of the cladding.

69. The fact that they were aware that Mr. Ragaglini was assisting them in the performance of their duties makes no difference whatever. The essential point is that at no time did anyone on BEA's behalf absolve TW from the performance of their duties.

70. Contrary to this TW warranted the due performance of the contract.

71. Before leaving the question of liability under the contract it is necessary to consider the complaint made in Ground 3 concerning the warranty.

72. Clause 2.15 of the specification reads:

"2.15 FIXING

Fixing details will be discussed and agreed with the successful Tenderer, but all fixing for the granite shall be in accordance with the recommendations of C.P. 298: 1972, by stainless steel anchorages or a suitable, approved, non-ferrous material such as copper, phosphor-bronze or gunmetal and shall of be such shape, dimensions, and strength that they are adequate to carry the loads to be imposed on them. Cramp holes and mortices should be carefully drilled or cut to avoid stunning or fracture of the material adjacent to the hole or mortice. The succeessful Tenderer will be expected to guarantee the fixing for the life of the building bearing in mind the typhoon conditions in Hong Kong.

Tenders shall be based on a fixing system which provides a hollow space between the back of the granite and the face of the concrete structure for external wall cladding.

It is anticipated that the granite thickness will vary in accordance with the method used and this must be clearly indicated with the Tender.

Alternative fixing systems may be considered and full details must be submitted with the Tender, however, Tenders must guarantee that no surface staining from sulphates etc. or leaching will occur.'

73. The Judge dealt with the matter at p.14 of his judgment in this way.

"(i) What acts or omissions of either Tsien Wui or Palmer and Turner were the cause of the damage?

(ii) The date when the Bank's cause of action arose for the purposes of determining -

(a) when the limitation period expired under section 4 of the Lirnitation Ordinance; and

(b) whether section 31 of the Limitation Ordinance applies to the Bank's claim?

(iii) If section 31 of the Limitation Ordinance does apply to the Bank's claim when did the Bank have knowledge of the claim for the purposes of the section 31(5)?

(iv) The amount of Palmer and Turner's liability (subject to the limitation defences).

The case on this point mounted by both Tsien Wui and Palmer and Turner is similar. The only difference is that, against Tsien Wui, the Bank still maintains a case on contract. Although Mr Scott concedes that the contractual claim against Palmer and Turner is time barred, that against Tsien Wui, he says, is not. This is because, argues Mr Scott, the contractual claim against Tsien Wui is based on a continuing warranty for the lifetime of the building so the limitation period does not begin to run until the end of the lifetime of the building. I have already recited the terms of the warranty. It was that Tsien Wui had exercised and would exercise all reasonable skill and care in the design, the selection of materials and goods and in satisfying any performance specification or requirement. Clause 2.15 says that Tsien Wui 'will be expected to guarantee the fixing for the life of the building bearing in mind the typhoon conditions in Hong Kong.' The only thing we know about this guarantee is that Gammon did not want it. There is no evidence that it was asked for, or given by Tsien Wui to anyone. Even if one assumes that, by tendering, Tsien Wui impliedly gave that guarantee to the Bank, that is not the basis for the Bank's contractual claim. That claim is based fairly and squarely on the failure to exercise the skill and care I have mentioned, and that only in relation to the satisfaction of any performance specification or requirement. Mr Scott expressly conceded that the claim is not based on an absolute obligation to guarantee that the cladding would not fail during the lifetime of the building. The failure to exercise skill and care upon which the claim is based could not have happened certainly after the cladding was completed in 1982."

74. I do not see how it is possible on any fair reading of clause 2.15 to come to any other conclusion than the one arrived at by the Judge. It was on the evidence clearly contemplated that a guarantee would be entered into. It never was and that was the end of the matter.

75. The way that the Judge proceeded was to hold that TW owed a duty of care to adequately supervise Mr. Ragaglini's work. He put it this way at p. 12 of his judgment.

"In the ordinary course, a principal is not responsible in tort for the negligence of an independent contractor such as Mr Ragaglini. Mr Scott, however argues that the task that was delegated to Mr Ragaglini was not the sort of thing that can be delegated without the principal remaining responsible. There is no doubt that the law does contemplate cases of this kind, although the selection of those cases seems to be somewhat arbitrary. All I can say is that I do not consider that the matter before me is the kind of case in which, as a matter of policy, the principal should be liable in tort for the negligence of his independent contractor.

Mr Scott also seeks to argue that Tsien Wui was itself negligent in that it failed to instruct Mr Ragaglini properly, it failed to check if Mr Ragaglini was properly qualified and it failed to ensure that Mr Ragaglini followed CP 298. These are particulars of negligence that should have been pleaded. They were not pleaded in spite of Tsien Wui asking specifically for such particulars. It is too late, in my view, to seek to raise then now. In any event, I do not think these allegations can be said to be negligence. The Bank, through Palmer and Turner, knew about Tsien Wui's ignorance and that it would need to rely on Mr Ragaglini, Palmer and Turner knew just what Tsien Wui and Mr Ragaglini were going to do, Palmer and Turner knew that Mr Ragaglini was purporting to use some American system, Palmer and Turner interviewed Mr Ragaglini, and Palmer and Turner gave its blessing to what Tsien Wui were doing. The Bank cannot now, in my view, criticise what Tsien Wui did, knowing what they were doing through Palmer and Turner, and approving of it (...)

(i) Palmer and Turner owed the Bank a duty of care as alleged by it;

(ii) given the nature of the relationship between the Bank and Palmer and Turner, their duty of care extended to not committing acts or omissions which caused economic loss;

(iii) they knew or ought to have known that the damages and defects pleaded might constitute a danger of physical injury to persons or physical damage to properties in the vicinity of the bank building;

(iv) they knew or ought to have known that the damage might expose the Bank to liability to third parties;

(v) they knew or ought to have known that the damage would require remedial works;

(vi) the bank building suffered the damage pleaded;

(vii) Palmer and Turner breached its duty of care to the Bank to produce or procure the design of a fixing system for the cladding that provided adequately for the differential movement between the cladding and the reinforced concrete structure of the Building; and

(viii) (subject to the defences and issues mentioned below) they are liable to compensate the Bank for the costs of such method of remedying the Damage as the Court should find was appropriate."

76. With respect to the Judge this displays a misunderstanding of the circumstances when a duty in tort can be imposed on a contractual situation. It is not possible to divorce the duty in tort from the duty in contract. This is apparent from a passage from the speech of Lord Goff at p.180 of Henderson v. Merrett cited earlier in this judgment and also from a later passage at p.192 of the same speech.

"So far as Hedley Byrne itself is concerned, Mr. Kaye reads the speeches as restricting the principle of assumption of responsibility there established to cases where there is no contract; indeed, on this he tolerates no dissent, stating (at p. 706) that 'unless one reads [Hedley Byrne] with deliberate intent to find obscure or ambiguous passages' it will not bear the interpretation favoured by Oliver J. I must confess however that, having studied yet again the speeches in Hedley Byrne [1964] A.C. 465 in the light of Mr. Kaye's critique, I remain of the opinion that Oliver J.'s reading of them is justified. It is, I suspect, a matter of the angle of vision with which they are read. For here, I consider, Oliver J. was influenced not only by what he read in the speeches themselves, notably the passage from Lord Devlin's speech at pp. 528-529 (quoted above), but also by the internal logic reflected in that passage, which led inexorably to the conclusion which he drew. Mr. Kaye's approach involves regarding the law of tort as supplementary to the law of contract, i.e. as providing for a tortious liability in cases where there is no contract. Yet the law of tort is the general law, out of which the parties can, if they wish, contract; and, as Oliver J. demonstrated, the same assumption of responsibility may, and frequently does, occur in a contractual context. Approached as a matter of principle, therefore, it is right to attribute to that assumption responsibility, together with its concomitant reliance, a tortuous liability, and then to inquire whether or not that liability is excluded by the contract cause the latter is inconsistent with it. This is the reasoning which Oliver J., as I understand it, found implicit, where not explicit, in the speeches in Hedley Byrne. With his conclusion I respectfully agree. But even if I am wrong in this, I am of the opinion that this House should now, if necessary, develop the principle of assumption of responsibility as stated in Hedley Byrne to its logical conclusion so as to make it clear that a tortious duty of care may arise not only in cases where the relevant services are rendered gratuitously, but also where they are rendered under a contract. This indeed is the view expressed by my noble and learned friend, Lord Keith of Kinkel, in Murphy v. Brentwood District Council [1991] 1 A.C. 398, 466, in a speech with which all the other members of the Appellate Committee agreed."

77. I will now consider the question of limitation. With the rejection of any liability by TW to guarantee the design of the cladding system for the life of the building there only remains the question as to whether the claim in tort is time barred.

78. I have already given reasons at some length as to why I consider that BEA's claim against P&T was time barred. I do not see any reason to come to any different conclusion concerning the claim against TW. There can be no doubt on the facts that a special relationship did exist and for the reasons which have been given I am satisfied that BEA's right of action against TW accrued at the time of the production of the defective design or at latest the completion of the construction of the building.

79. The consequence of all of this is that P&T's appeal is allowed and BEA's appeal against TW is dismissed. There will be no necessity for there to be any apportionment of liability.

80. So far as costs are concerned I would be disposed to make an order nisi that BEA should bear the costs of TW & P&T both before us and before Findlay, J.

Leong, J.A.:

81. I have read the judgments of my Lords Mayo and Rogers. I agree with the conclusions reached by my Lords.

Rogers, J.A.:

Background

82. This Action arises out of the failure of the granite cladding on the headquarters building of the Plaintiff Bank. Construction of the building was commenced in 1981 and the certificate of practical completion was issued on 7th March 1983. The 2nd Defendants were the architects who designed the building and had overall responsibility for the construction. The main contractor has not been a party to this Action. The 1st Defendant was the Nominated Sub-contractor for the installation of the granite cladding.

83. Action was commenced on 20th June 1994 against the 1st Defendant for breach of contract and in negligence relating to the design and installation of the granite cladding. On 25th May 1996, Action was commenced against the 2nd to 5th Defendants, also for breach of contract and in negligence.

84. The trial of this Action took place in May and June 1997 and on 25th June 1997 judgment was entered for the Plaintiff against the 2nd to 5th Defendants for the sum of HK$38,502,951.85 being the cost of re-cladding the building and associated consultants' fees. The Action against the 1st Defendant failed and as a consequence, the third party proceedings which the 1st Defendant had brought against the 2nd to 5th Defendants were dismissed.

The issues on this appeal

85. There are two major groups of issues on this appeal. The first is whether the 1st Defendant is liable to the Plaintiff in tort and, as a consequence, liable to make contribution to any damages awarded against the 2nd to 5th Defendants. The other issues on this appeal are whether any Action against the Defendants is statute-barred.

Liability of the 1st Defendant

86. Although any liability of the 1st Defendant would be to the Plaintiff in the Action, it was Counsel for the 2nd to 5th Defendants who made the major arguments in favour of liability against the 1st Defendant. For the main part, Counsel for the Plaintiff was prepared to adopt the arguments of Counsel for the 2nd to 5th Defendants. Should liability on the part of the 1st Defendant be found, the 2nd to 5th Defendants would claim contribution from the 1st Defendant as joint tortfeasors liable for the same damage.

87. As I have indicated, the Action brought by the Plaintiff against the 1st Defendant was framed in contract and tort. There was no dispute in this Court that any Action in contract was statute-barred.

The damage complained of was economic loss

88. The essence of the Plaintiff's complaint in respect of the cladding was that it had deteriorated to such an extent that it had to be replaced with new cladding and new fixing means. The Plaintiff complained that there were semi-elliptical shaped spalls and cracking around what were referred to as the "split tail" anchor positions of the fixing brackets which held the cladding panels in position. There was isolated vertical cracking and spalling particularly along the vertical stone panel edges and some at the mid span of the panels. It was said that, as a result, the external granite cladding of the building was damaged and caused a threat or danger to the health or safety of the occupants of, and other persons or property in the vicinity of, the building. As such, the damage which was the subject of complaint was damage to the building which had been constructed.

89. It is unnecessary to trace the development of the law of negligence in relation to the question as to whether damage to a building constitutes damage recoverable under normal principles of negligence or whether it constitutes economic loss. It suffices to say that as a result of the more recent cases in particular D. & F. Estates Ltd & others v. Church Commissioners for England and others [1989] 1 A.C. 177 and Murphy v. Brentwood District Council [1991] 1 A.C. 398, it is now settled that the damage occasioned by the defective construction of the building is to be considered as economic loss. The reason, put shortly, is that there has been no damage either to persons or other property; the building itself never existed otherwise than as a defective building. As such therefore, any loss which has been occasioned to the owner of the building is diminution in the value of the building by reason of any defect.

90. In this regard, there is a clear parallel with goods. If goods are made with a latent defect such that they cause damage, either to a person or other property, any loss is recoverable in negligence on the reasonable foreseeability test: see Donoghue v. Stevenson (1932) A.C. 562. If, however, a product which is defective is manufactured, then short of unforeseen injury to person or property taking place, the only loss which the purchaser or owner of that product has suffered is the cost of either rectifying the defect or, at worst, the whole value of the product.

Recoverability of economic loss in negligence

91. The law of negligence in relation to the recovery of damages for economic loss has again been the subject of some development. Predicated, perhaps, in the case of Nocton v. Lord Ashburton [1914] A.C. 932, the recoverability of damages for economic loss based on the tort of negligence was thoroughly examined in the case of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd [1964] A.C. 465. That case concerned the giving of faulty financial information by a bank. The House of Lords held that the economic loss which was suffered by the Plaintiff could be recoverable where there was a proximity of the parties by reason of a special relationship. There had to be an assumption of risk as Lord Morris put it at p.502 of the report :

"My Lords, I consider that it follows and that it should now be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference. Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise."

The Junior Books case

92. In the case of Junior Books Ltd. v. Veitchi Ltd (1983) A.C. 520 the requirement of a sufficiently close proximity between the plaintiff and the defendant and in particular the reliance upon skill and experience of the defendant was referred to by the House of Lords, see for example, Lord Roskill at p.546 B-D. That was a case where a sub-contractor who had installed defective flooring had been sued in negligence for the loss occasioned to the building owner in having to replace the defective flooring. It was said that the relationship between the sub-contractor and the building owner had been in "as close a commercial relationship ..... as it was possible to envisage short of privity of contract." There had been no direct contractual relationship but clearly specific reliance on the Defendant's skill had been placed by the building owner who had had the building built for it. Because of the reliance on the flooring contractor's skill, there was that sufficient proximity relationship.

93. However, the decision in the Junior Books case was also in part based upon the reasoning in Anns v. Merton London Borough Council [1978] A.C. 728 which has subsequently been overruled in Murphy v. Brentwood District Council [1991] 1 A.C. 398. Nevertheless, as was pointed out in the Murphy case, the reasoning in Junior Books also encompasses the recoverability of economic loss on the basis of negligence founded upon a special relationship of proximity.

94. In the Murphy case, the House of Lords recognised that in order for a building owner to recover against a builder, or in that case a local authority alleged to be in breach of statutory duty, it was necessary to establish a special relationship of proximity which imposed on the tortfeasor a duty of care to safeguard the plaintiff from the economic loss. Lord Bridge, for example, in his speech used the expression "special relationship of proximity" on at least five occasions.

95. Whereas the Murphy case was concerned primarily with the liability alleged to be incurred by a local authority, the application of the principles of that case are clearly wider.

Was there a special relationship of proximity between the 1st Defendant and the Plaintiff?

96. In order to determine whether there was a special relationship of proximity between the 1st Defendant and the Plaintiff, 3 things must be considered (a) what was the damage; (b) what was the cause of that damage and (c) whether there has been an assumption of liability in respect of the subject matter of the cause of complaint. In respect of the damage, that, as I have already alluded to, was economic loss. The immediate cause of complaint was the defective cladding. Since the cladding was part of the building and the building had only ever existed with that cladding, it was economic loss. Important for this case however is the next consideration namely what was the cause of the defects exhibited by the cladding. In this respect, it is necessary to consider the facts as found by the Judge below.

The findings of the Judge

97. The Judge first considered the question as to why the cladding failed. There were six experts who were called by the parties. To some extent, they were in agreement as to their evidence. There was a meeting of the technical experts prior to the trial and they issued a record of their agreement. Save in three respects, their conclusions in the record of agreement were unanimous.

98. The expert who had reservations on three of the points was a Mr. John Perry who had been called on behalf of the 2nd Defendant, Palmer and Turner. He alone put the blame for the failure of the cladding upon the manner of installation and not on the design. The Judge said that the impression he gained from Mr. Perry's evidence was that "he was arguing a case for (the architects) as an advocate, rather than giving evidence as an objective expert." The Judge having considered his evidence rejected it. The Judge's conclusion was "that it was much more likely that the designer of the cladding system had simply made mistakes and that those mistakes were such that no competent designer purporting to have specialist skills in this field should have made."

99. In coming to his conclusion that the design of the cladding system was faulty the Judge did not identify precisely what those faults were. One passage in the judgment which gives some clue to the factors which the Judge may have thought relevant was the passage on page 11 where, in speaking of the Italian architect who was called in by the 2nd Defendant, the Judge said :

"Even a cursory reading of CP 298 would have provided the guidance needed to avoid the errors into which Mr Ragaglini fell."

100. It will be necessary to examine the nature of the design faults later; but for present purposes, it suffices to say that the defective nature of the cladding was caused by design faults.

Was there an assumption of responsibility in respect of the design of the cladding system?

101. The Judge then went on to consider where the responsibility for the design of the cladding system lay. In examining the evidence, the Judge below quite understandably attached much more importance to the contemporaneous documents than the oral evidence of what had happened something like 16 years before the trial of the Action. He examined the contractual documents and in particular Clause 2.24 of the Specification which put on the cladding sub-contractor the responsibility for providing shop drawings of the typical joints and back-up material, the location and kind of control and thermal movement joints, the location and kind of pressure relieving joints, the angles, cramps, dowels and other accessories, and the jointing systems and patterns. The 2nd Defendant's explanation for imposing these tasks on the cladding sub-contractor was that they, the architects, did not have sufficient expertise to undertake this work themselves. The Judge came to the conclusion that, as a matter of fact, during the period leading up to the acceptance of its tender, Tsien Wui, the 1st Defendant, did undertake the responsibility for the design of the cladding system.

102. The relevant dates in respect of the contract for the cladding system were as follows.

103. The tender documents are dated 16th February 1981. The 1st Defendant was a tenderer for the cladding system. If the tender were to be successful there would be a sub-contract between itself and the main contractor. The tender documents included a form of agreement between the employer namely the Plaintiff and the sub-contractor which was required to be completed as part of the tender process. That Agreement provided, inter alia, as follows :

"The Sub-Contractor has exercised and will exercise all reasonable skill and care in :

(a) the design of the Sub-Contract Works insofar as the Sub-Contract Works have been or will be designed by the Sub-Contractor; and

(b) the selection of materials and goods for the Sub-Contract Works insofar as such materials and goods have been or will be selected by the Sub-Contractor; and

(c) the satisfaction of any performance specification or requirement insofar as such performance specification or requirement is included or referred to in the tender of the Sub-Contractor as part of the description of the Sub-Contract Works."

104. In paragraph 2.15 of the specification for the works it was provided that the fixing for the granite shall be in accordance with the recommendations of C.P. 298:1972.

105. By a letter of the 5th May, the contractor, Gammon, informed the 1st Defendant that its tender had been successful. It seems that on the 18th May or thereabouts the direct Agreement between the Plaintiff and the 1st Defendant which I have just referred to was signed.

106. The exact effect of that Agreement may be open to questions of interpretation particularly in respect of the words "will be designed by the Sub-Contractor" since subsequent events show that the 1st Defendant did not itself design the cladding system.

107. The main contract between the Plaintiff and the main contractor was dated 25th May 1981 but the sub-contract between the main contractor and the sub-contractor Tsien Wui was not effective until August of that year.

108. The judgment goes on to deal with the events which took place between the parties. One important matter which the Judge refers to is the letter of the 21st May from the contractor to the 2nd Defendant. That letter is important for two reasons. In the first place, the contractor made perfectly clear to the architects, the 2nd to 5th Defendants, that the 1st Defendant should not be responsible for the design work as it was outside the scope of its experience and indeed the relevant experience was not available in Hong Kong. The letter then went on to say that these matters were of no mean importance and had to be taken seriously not least because there had apparently been failures of cladding systems in buildings overseas. Finally, the contractor refused, point blank, to accept the clause regarding any lifetime guarantee by the 1st Defendant and said that if such was required, it would have to be given directly between the 1st Defendant and the Plaintiff. I should note here that that guarantee was apparently never given. This is again, perhaps, significant in view of the fact that it is referred to in paragraph 2.15 of the specification. The Judge noted in respect of this letter that one of Palmer and Turner's employees appears to have put a note on the letter; that note, to my mind, indicates, perhaps, a lack of appreciation of the seriousness of the points that were made by the contractor.

109. The judgment then goes on to indicate how in a meeting of 5th June 1981 the contractor expressed serious concern about the fixing details of the external granite. The minutes recorded that the architect would liaise with the contractor and the 1st Defendant and advise in due course. It was also agreed on the contractor's suggestion that the shop drawings would be submitted directly to the architect for inspection.

110. On the 11th June, the 1st Defendant wrote to the contractor, with a copy to the architects, submitting shop drawings and saying that the final shop drawings as well as the fixing method will be re-submitted at the end of the month with the overseas consultants. It appears from that letter that it is clear that the parties were adopting what was called the "American Standards". Although the papers do not contain any precise identification as to what those standards, it seems from the evidence that they were Marble Institute of America standards. Later in June, the contractor wrote again to the architects in terms which could only be regarded as expressing concern about the design process and the failure to follow the recommendations of CP 298. In early July, there was a meeting at the offices of the architect between the 1st Defendant, someone from the main contractor and Mr. Ragaglini. Mr. Ragaglini was an independent architect engaged by the 1st Defendant. He came from Italy for the specific purpose of designing the cladding. At least one document still remains from that meeting which, as the Judge found, was on a balance of probabilities made by Mr. Ragaglini. Given the notation on it, I doubt that any other conclusion could have been come to. The Judge's conclusion in respect of all this was "In my view, the whole weight of the evidence points to Mr. Ragaglini having come to Hong Kong to design the system."

111. Although in the course of argument, the 2nd to 5th Defendants' Counsel attempted to suggest that simply because his clients had met Mr. Ragaglini in a conference, it was not sufficient to show that his clients were aware that the design work for the cladding system was being done by Mr. Ragaglini as an independent contractor of the 1st Defendant, those submissions were made without any reference to the evidence and come no way near being able to disturb the Judge's clear finding of fact. The Judge's conclusion at pages 11 and 12 of his judgment was as follows :

"There is no doubt in my mind that, on the evidence of the experts, other than that of Mr. Perry, Mr. Ragaglini did not do his job with reasonable skill and care. Even a cursory reading of CP 298 would have provided the guidance needed to avoid the errors into which Mr Ragaglini fell. But Mr. Ragaglini was an independent consultant engaged by Tsien Wui, not an employee. Gammon and Palmer and Turner knew that Tsien Wui did not have the expertise to design the system itself. Even if the Bank did not know this directly - and it may have done because the minutes of the meeting of 16 April 1981 indicate the Bank's concern with supervision and that it knew of some Italian involvement - it knew it through Palmer and Turner, who were the Bank's agents for just this sort of purpose. Palmer and Turner also knew that, to overcome this disability, Tsien Wui would engage an Italian expert. The Bank, through its agent, raised no difficulty about this, and, after interviewing him, approved of Mr. Ragaglini."

112. Even if it is challenged by Mr. Thomas S.C. on behalf of the 2nd to 5th Defendants that there may not have been any specific approval, in the sense of an "imprimatur" from either the Plaintiff or the 2nd Defendant as to Mr. Ragaglini, it is clear that they accepted Mr. Ragaglini as the person undertaking the work, work which as I have already pointed out the 2nd Defendant was at pains to give evidence that it was incompetent to do. Indeed the 2nd Defendant, as the architect on behalf of the Plaintiff, raised no objection to what Mr. Ragaglini was doing or the drawings which they clearly knew he was preparing. The learned Judge went on at the foot of page 12 to say :

"The Bank, through Palmer and Turner, knew about Tsien Wui's ignorance and that it would need to rely on Mr. Ragaglini, Palmer and Turner knew just what Tsien Wui and Mr. Ragaglini were going to do, Palmer and Turner knew that Mr. Ragaglini was purporting to use some American system, Palmer and Turner interviewed Mr. Ragaglini, and Palmer and Turner gave its blessing to what Tsien Wui were doing. The Bank cannot now, in my view, criticise what Tsien Wui did, knowing what they were doing through Palmer and Turner, and approving of it."

113. Against those findings which in my view are fully supported by the evidence, the argument put forward by the 2nd to 5th Defendants and the Plaintiff in trying to impose tortious liability in negligence upon the 1st Defendant was to try to ascribe to the cause of action in negligence factors imported from the law of contract. If the 2nd to 5th Defendants and the Plaintiff were able to exclude the 1st Defendant's profession of a lack of any expertise in the design of the cladding, the correspondence, the meetings and the actions which actually took place and rely simply upon the contractual documents, they might be in a position to muster a case.

Whether liability in negligence can only be excluded by a contractual provision?

114. At the heart of the 2nd to 5th Defendants' argument lay the submission that when liability in negligence arises out of a special relationship the tortious duty of care can only be restricted or limited by a clearly worded "contractual provision". That contention is wrong for two reasons. On a very facile plane, it elevates to a contractual status, and seeks to import concepts and rules from the law of contract to, the law of tort relating to negligence. In the second place, in relation to the action in negligence said to arise out of a special relationship it confounds the question as to whether there has been an "assumption of responsibility" with the question of whether there has been a disclaimer. The argument was founded upon quotations out of context from the speech of Lord Goff in Henderson v. Merrett Syndicates Limited [1995] 2 A.C. 145 and seeks to apply those quotations without regard either to what Lord Goff was saying or to the reasoning and the issues to which the relevant parts of his speech were directed.

The Henderson case

115. The Henderson case concerned preliminary issues in three Actions brought on behalf of Names against managing and members' agents at Lloyd's. Important amongst those issues was whether the managing agents who were also members' agents owed Names a non-contractual duty to carry out their underwriting functions with reasonable skill and care. Other issues arose in the appeal but crucial to the questions which Lord Goff was considering in the passages from which quotations were taken which were relied upon by Counsel for the 2nd to 5th Defendants was the issue as to whether tortious liability existed. One of the reasons why it was important to consider the existence of tortious liability was that, if successful, the Names could take advantage of the more advantageous position on limitation in respect of tort. For the purposes of the appeal, there had been no dispute that there had been an implied term in the contracts between the Names and the agents that a duty to exercise care and skill in the exercise of the relevant functions under the agreements was to be implied.

116. It was against that background that the question had to be considered as to whether a like obligation rested upon the managing agents in tort. If managing agents who were also members' agents owed such a duty of care in tort direct to the Names, the effect would be that the direct Names would have alternative remedies in contract and tort against the managing agents; if the managing agents who were not also members' agents owed a duty of care in tort to indirect names, there would be a corresponding right of action to the indirect names notwithstanding a contractual connection between the indirect names and the managing agents.

117. The argument on behalf of the agents which was presented to the House of Lords and with which Lord Goff was dealing was fundamental. It was said that a duty of care did not exist in tort because the imposition of such a duty upon the agents was inconsistent with the contractual relationship between the parties. Lord Goff undertook an extensive analysis of the position in this regard. He noted for example that in France the concurrence of claims in contract and tort was outlawed. The position in England had, at one time, been thought to be similar. Cases such as Groom v. Crocker [1939] 1 K.B. 194 were cited as authority for that proposition. Indeed, such high authority as Sir Wilfrid Greene M.R. had held that "The relationship of solicitor and client is a contractual one. It was by virtue of that relationship that the duty arose, and it had no existence apart from that relationship."

118. It is unnecessary to go into whether or not the decision in Groom v. Crocker is explicable in the context of the law as to negligence and the type of damage which was recoverable for that tort in 1939. It suffices to say that, as recorded by Lord Goff, it was not until the decision of Oliver J. in Midland Bank Trust Co. Ltd v. Hett, Stubbs & Kemp [1979] Ch. 384 that a clear position was taken that a solicitor could be liable to his client for negligence in either contract or in tort.

119. Lord Goff also referred to the position as it existed in a number of other jurisdictions including Ireland, New Zealand, Australia and the United States of America. It is to be noted that a common theme running through those jurisdictions was that it is in only comparatively recent times that the concurrent jurisdiction in contract and tort was accepted.

120. Before examining the historical and comparative law as to the ability to sustain concurrent actions in contract and tort, Lord Goff had analysed the factors which gave rise in the law of tort to an action based on negligence for economic loss. Not unnaturally, Lord Goff took as his starting point the decision of the House of Lords in Hedley Byrne. He cited the passage in the speech of Lord Morris at pages 502-503 to which I have already referred.

121. From that, Lord Goff went on to consider the principles which underlay the cause of action for the tort of negligence. In his analysis, it rested upon a relationship between the parties which could be general or specific to the particular transaction and which may or may not be contractual in nature. Lord Goff acknowledged that in some cases criticism had been made of the concept of "assumption of responsibility" as being "unlikely to be a helpful or realistic test in most cases". Nevertheless, he considered that in cases such as those which he was considering recourse could be had to such a concept which had been adopted, in one form or another, by the whole of the House of Lords in Hedley Byrne. He considered that an objective test should be applied when asking the question whether in a particular case responsibility should be held to have been assumed by the Defendant to the Plaintiff; this was especially true in contexts concerned with a liability which was said to have arisen under contract or in a situation equivalent to a contract. On that basis, Lord Goff considered that there was no difficulty in a person who had assumed responsibility being liable in damages in respect of economic loss which flowed from negligent performance of the relevant services. It is to be noted that at this stage, at page 181E of his speech, Lord Goff said :

"The concept indicates too that in some circumstances, for example where the undertaking to furnish the relevant service is given on an informal occasion, there may be no assumption of responsibility; and likewise that an assumption of responsibility may be negatived by an appropriate disclaimer."

122. That statement, apart from others, was latched onto by Counsel for the 2nd to 5th Defendants as being a statement of law that the assumption of responsibility might only be negatived by a contractual disclaimer. That however is clearly not what Lord Goff was saying. In the circumstances of the cases which he was considering the starting points for considering the bases of the relationships between the parties were the contracts; there were no oral statements or other negotiations or pre-contractual or post-contractual documents which were being considered by the House at that stage. Lord Goff in commencing his consideration of this aspect of the case had, as I have pointed out, based himself on the three-fold premise that where a person (1) possessed a special skill; (2) undertook to apply that skill for the assistance of another and (3) that other relied upon that skill, there were circumstances where the law would hold that there had been an assumption of responsibility. That assumption of responsibility was therefore quite irrespective of contractual terms, albeit the only known contact between the parties was contractual.

123. Lord Goff was well alive to and mentioned many of the differences between the action in contract and the action for negligence. At page 185 of the report he alluded to the different rules as to remoteness of damage which are less restrictive in tort than in contract and to the availability of the opportunity to obtain leave to serve proceedings out of jurisdiction. He had previously referred to the differences in the effect of the rules as to limitation of actions. Two features were referred to by Lord Goff which are particularly pertinent to the present case. One was the right of contribution between joint tortfeasors which would not be available to those who had severally broken their separate contracts. This was the guiding feature which encouraged counsel for the 2nd to 5th Defendants to take up the cudgel so vehemently on the Plaintiff's behalf against the 1st Defendant. If the 1st Defendant's liability to the Plaintiff were simply in contract, limitation periods aside, the 2nd to 5th Defendants would be unable to claim contribution from the 1st Defendant. Naturally, of course, the period of limitation is also a highly relevant matter in this case.

124. I find it unnecessary to go through all the passages in Lord Goff's speech which Counsel for the 2nd to 5th Defendants relied upon. Many of them were tenuous in the extreme, even when the statements were taken out of context. But when seen in context, for example the passage at page 193, the argument was fallacious. The point Lord Goff was dealing with was the argument that a liability could not exist in tort as well as in contract. By saying that a person could contract out of liability for negligence, Lord Goff was not saying that the only basis upon which assumption of liability in tort could not have occurred is if the Defendant had contracted out of it. He was merely saying that if he had contracted out of it, no liability would exist.

125. The argument, as presented by Counsel for the 2nd to 5th Defendants, was to put the cart before the horse. It was to equate the absence of an exclusion of liability for negligence in the contractual documents as being the sole ground upon which it could be said that there had been no assumption of liability.

126. In my view, however, the law of negligence is the law of negligence. It is not some sort of hybrid importing concepts from the law of contract to suit the case of a co-defendant who wishes to claim contribution or a Plaintiff who wishes to found an action.

Application of the test of Lord Morris

127. Reverting to the three-fold test of Lord Morris in the Hedley Byrne case as approved and adopted by Lord Goff, it seems to me that the 1st Defendant did not possess any special skill in relation to the design of the cladding and indeed the 1st Defendant had made perfectly clear to the relevant parties, both the 2nd Defendant and the Plaintiff, that it did not possess such skill and would need to employ a consultant. Nor was the result of the arrangements between the parties that the 2nd Defendant would apply any such skill for the assistance either of the Plaintiff or the 2nd Defendant; the upshot of the arrangements was that the 1st Defendant would engage an overseas independent contractor to do the design work and the 2nd Defendant would approve the design work. Still less was any reliance placed upon any skill that the 1st Defendant might be supposed to have had. The reliance was placed on Mr. Ragaglini's skills whom all parties knew perfectly well were being imported because the 1st Defendant (and for that matter the 2nd to 5th Defendants) did not have the relevant design skill in what appears to have been a comparatively new type of construction. Very likely that skill did not exist in Hong Kong at all at that time.

128. Although the conclusions which I have reached are expressed in a slightly different way to the way the Judge expressed them I consider that the Judge came to the correct conclusion in respect of liability alleged against Tsien Wui.

129. There are 2 further aspects on this part of the case.

130. Having reached the conclusion that the 1st Defendant did not assume responsibility in the relevant respect the general rule that an employer is not answerable for the wrongs or negligence of an independent contractor would apply.

131. One further point raised by Counsel for the 1st Defendant was that no reliance was placed on the 1st Defendant in respect of the design of the cladding system because the 2nd Defendant was responsible for checking and approving the design details and the drawings. Hence any reliance was placed on the 2nd Defendant and not on the 1st Defendant. That seems to me a point which might be raised if the question as to the amount of any contribution between the tortfeasors were to be relevant. It does not seem to be a point which would absolve a party in the position of the 1st Defendant if the true analysis were that it had assumed responsibility.

132. The factual basis, however, is slightly obscure. It was the 2nd Defendant's case that they had no expertise in respect of this type of cladding and would also have relied on an overseas expert. It was put to Mr. Fong, the director of the 1st Defendant who appears to have had in practice substantial control of that company, that he was well aware of the 2nd Defendant's admitted lack of expertise. There was, however, no finding in this respect.

The limitation period

133. Under Section 4 of the Limitation Ordinance, Cap. 4, actions founded on tort shall not be brought after the expiration of 6 years from the date on which the cause of action accrued. The scope of Section 4 of the Limitation Ordinance has, however, been changed in relation to negligence actions by Section 31. The operation of Section 4(1) is excluded in those cases where Section 31 applies. Section 31 applies to actions for negligence, other than those relating to personal injuries, where a plaintiff, or his predecessor-in-title, first had the knowledge required for bringing an action for damages in respect of the relevant damage and the right to bring an action after the date on which the cause of action accrued. Provided those conditions are satisfied the limitation is either 6 years from the date on which the cause of action accrued or 3 years from the date of knowledge if that period expires later than the 6-year period.

134. However, the provisions of Section 31 are not applicable in cases where an action was statute-barred under the Ordinance before 1st July 1991: see Section 38A(2)(a). In practical terms therefore if a cause of action for negligence had accrued on 30th June 1985, or before, the cause of action was statute barred before the coming into force of Section 31.

Essential components of the tort of negligence

135. In Dorset Yacht Co. Ltd. v. Home Office (1970) A.C. 1004, Lord Pearson said that it was logically correct and often convenient for the purposes of exposition to analyse the tort of negligence into three components. Those three components are as follows :

(1) The existence of a duty to take care which is owed by the defendant to the complainant;

(2) The failure to attain that standard of care thereby committing a breach of the duty; and

(3) Damage, which is both causally connected with the breach and recognised by the law, has been occasioned to the complainant.

Damage necessary for cause of Actin in negligence to accrue

136. For the cause of action in negligence to be complete, it is, therefore, necessary that damage should have been occasioned to the plaintiff. Three points could be made upon this. The first is that it must be relevant damage. The second is that it is of course necessary to identify the damage and thirdly, not all damage need have been suffered by the date of the commencement of the action, it being sufficient that damage has been suffered; recovery can be claimed on the basis of further damage that will be suffered.

The Nykredit case

137. The case of Nykredit Mortgage Bank PLC v. Edward Erdman Group Ltd [1997] 1 WLR 1627, concerned a claim by a bank in respect of an overvaluation of property on the basis of which the plaintiff had lent money. In the case the House of Lords considered the question of when a cause of action accrues in an action for negligence based on economic loss. Lord Nicholls at 1631D pointed out that naturally the first step in assessing when the first measurable relevant loss was sustained was to identify the relevant measure of loss. The next step in the process was to consider when that loss had occurred.

138. Although the House of Lords was considering the question of a negligent valuation and its effect on the value of a property, the principles which were applied appear to be applicable in other cases. Lord Nicholls pointed out that the moment at which a loss is revealed will depend on the facts of each case. He went on to say that the difficulties may be evidential and practical but are not difficulties in principle. It was not necessary in his judgment that the lender, for example, should have realised his security and fully quantified his loss: the Court would always do its best to assess a loss if disaster were evident and the plaintiff were to sue without waiting for the full effect of the damage.

Nature of the damage

139. As pleaded in the Statement of Claim, as I have referred to above, the damage in respect of which the claim is made is the economic loss consequent upon the physical damage occasioned by the faulty design of the external granite cladding of the building which has resulted in the cladding having to be removed and replaced by new cladding. The learned judge below held that the root cause of this physical damage was a design fault. He rejected the evidence of Mr. Perry, the expert on behalf of the 2nd to 5th Defendants who put the cause of the physical damage as faulty construction. In that rejection and in finding that the cause of the physical damage was faulty design, the Judge implicitly also rejected the suggestion which had been made that the physical damage was due to the inherent weakness in the cladding.

140. All experts called by the parties in the action in their record of agreement put the nature of the damage to the cladding as having three elements. First, there were structural movements which included creep, drying shrinkage and thermal movements. Then there was the movements of the cladding, which included swelling which was considered to be small compared with the thermal movements, thermal cyclic movement and then some very small effects of load distortion and stress relief resultant upon the stone having been quarried. Lastly, there were fixing movements which included load deflection distortion.

141. These matters were not dealt with by the Judge in his judgment and hence in commenting on them, it is necessary to observe caution in the absence of having seen and heard the witnesses. It is, however, possible to point out that one major consideration was the initial drying shrinkage of the concrete frame of the building itself. The evidence was that in the initial period after the completion of a concrete building, drying shrinkage of the concrete takes places. According to Mr. Kinnear, whose evidence favourably impressed the Judge, the shrinkage over the first year can apparently amount to approximately 1.5 mm per storey height. What is termed "long term creep" can also account for a significant change in the dimensions of the building. There can be rotation of floors and beams at the corners of the edges of the building and the long term creep can also cause shortening of columns. Again, this movement is likely to take place shortly after the completion of the relevant structure. A period of 4 to 9 months is suggested.

142. The cladding of the Plaintiff's building is attached to the structure of the building by means of fixing brackets. Obviously one of the important factors that has to be taken into account is how soon after the completion of the building the cladding is attached. In this case, the evidence, such as it was, indicated the cladding was attached very soon after the construction of the concrete structure of the building. The inevitable inference would be that substantial shrinkage and creep effects must have occurred after the cladding had been attached.

143. The effect of what is termed "cyclic thermal fatigue" is apparently progressive. The natural heating and cooling of the granite cladding causes stresses to occur and over a period of time the granite fails. Its failure is apparently slow at first but quickens later. The Black Restenburg (or Impala) granite used for the cladding in the building was, it seems at least as much as any other material, prone to the effects of thermal movement and stresses.

144. Before us attempt was made in the course of argument particularly on behalf of the 2nd to 5th Defendants to suggest that the cause of the cladding failure was a failure to follow, paragraph 3.9.4 of that Code of Practice C.P.298:1972. I do not consider that the evidence as it emerged showed that that was the sole cause of failure. It is true that in relation to compression joints which are designed to take up the differential movement between the concrete structure and the cladding, paragraph 3.9.4 sets out that a clear 13 mm width of joint is considered to be the minimum per floor. Nevertheless, it was agreed by the experts "CP298 as a Code of Practice does not have a mandatory status nor does it apply to all cladding types. Some departures from its recommendations are permitted provided performance equivalence can be demonstrated."

145. It seems that Mr. Ragaglini had suggested that 6 mm joints would be provided for each floor with a 20 mm joint every six floors. From what can be determined that was the specification adopted. Again from the contemporaneous documents it would seem that Mr. Ragaglini had suggested that the American standards should be adopted. It is not clear what those American standards were, what provisions were made for fixing the cladding to the structure in those standards or how they catered for the differential movements in the various building materials. Although the size of the joints would at first blush appear to be an obvious factor which may have led to the eventual breakdown of the cladding, the figures which were produced in the various reports by the experts would lead to the conclusion that even here much would depend upon the circumstances and in particular perhaps the period for drying out allowed, or not allowed, between the completion of the concrete structure and the fixing of the cladding.

146. It seems that the cladding was not only fixed to the structure prior to the completion of the main concrete structure but the cladding commenced when the concrete structure had reached nine to ten storeys, it seems that the cladding may have progressed faster than the construction of the building. The effect of the latter fact would have been to allow almost no time for the shrinkage to take place during drying.

147. Furthermore, there were other departures from the stated recommendations in the CP298 including the thickness of the cladding panels. It seems also that the fixing system for the cladding itself may have contributed to the breakdown of the cladding panels. Here the rigidity of the fixing system seems to me to have been very likely to have been a contributing factor. Furthermore, the use of a single bracket with opposite pointing tails may well have had a significant effect. If separate brackets had been used, the compression might not have been so great.

148. In summary, it seems that the conclusion arrived at by the Judge below that the damage was caused by design failures was correct. The effect of the design failure was probably made worse by the shortness of time allowed for drying of the main concrete structure. The further point which emerges from this is that the damage was progressive. Indeed, even after the writ had been issued, it was likely that the damage would become worse. In those circumstances, the Judge considered it correct to award damages on the basis of replacement of the whole cladding and its fixing system and did not confine damages to the replacement of those panels which were broken.

149. The approach of the House of Lords in the Nykredit case to the question when the cause of damage occurred was, as I have mentioned, to decide first what the damage was and then to decide when that occurred. This would not only seem to have practical logic as its basis but to have the support of prior authority. The Nykredit case involved the overvaluation of property leading to the Plaintiff loaning excess funds. The date at which the Plaintiff suffered the loss was therefore not difficult to determine. More difficulty, perhaps, arises in the case where the economic loss arises from the construction of a building based on faulty advice if the faultiness of the design is not at once apparent.

When did the loss occur?

150. The question thus arises as to when the loss occurred. The relevant loss is the diminution in the value of the asset occasioned by the defects in that asset. Specifically in this case the loss, whether it is quantified as the full value of the cladding itself or as the costs of its repair is that occasioned by the defects in the design of the cladding system.

151. There have been a number of dates which have been suggested in the course of argument as being the dates relevant as to when the damage which gave rise to the cause of action occurred. Amongst those, the important ones are as follows :-

(1) The date when the negligent advice was given and acted upon;

(2) The date when the building was completed and paid for by the Plaintiff with its design defects inherent;

(3) The date when physical damage first occurred to the cladding whether or not that damage was noticed or noticeable by the Plaintiff or anybody else;

(4) The date when the physical damage to the cladding was evident or should have been evident; and

(5) The date when the financial loss was suffered to the extent that the repairs were carried out and paid for.

152. At least one of those dates can, in my view, be discarded at once. It is not necessary that the loss should have been capitalised to the extent that the repairs had been paid for or that the building had been sold at a loss. As Lord Hoffmann said at p.1639 of the Nykredit case, relevant loss is suffered when the Plaintiff is worse off by reason of the breach of duty of care than otherwise he would have been. In principle, there seems to me to be no reason why a Plaintiff who has suffered economic loss by reason of defective design of the building he has acquired could not retain that property together with its defects and suffer the damage of having a building with a design defect. He would be worse off by bearing the burden of that.

153. Despite the fact that the damage which is the subject of the cause of action is economic loss, if that economic loss is predicated upon a design defect, the question which the Court has to answer in deciding when the damage occurred is when the Plaintiff suffered by reason of defects in the design. The quantum of damage may differ, of course, depending upon the particular facts. Given the construction of a building, for example, the occurrence of physical damage may perhaps be dependent upon outside causative factors and physical damage may or may not occur during the life of the building. Obviously if no physical damage occurs, the quantum of economic loss is considerably reduced.

154. If the defect in the design is such that inevitable physical damage will occur then it might be that it could be said that the law should look upon that damage as having already occurred when the building constructed according to the defective design is constructed.

The Pirelli Decision

155. Attention was drawn by Miss Gladys Li S.C., Counsel for the 1st Defendant, to the case of Pirelli General Cable Works Ltd v Oscar Faber & Partners (a firm) [1983] 2 A.C. 1.

156. The Pirelli case concerned an action by a factory owner who had engaged a firm of consulting engineers to advise on the construction of an addition to their factory. The addition included a new 160 ft chimney. Although the chimney was designed and supplied by the sub-contractor, the consulting engineers accepted responsibility for the design. The chimney was pre-caste and had a refractory lining of a new material which proved unsuitable. The chimney developed cracks and later had to be partially demolished and replaced. The defendant consulting engineers admitted negligent passing of the design. At least by the time the case reached the House of Lords, therefore, there was no dispute between the parties as to the liability of the Defendants in negligence. Whether or not the liability was admitted on the basis of Anns does not seem to matter because the nexus between the parties would indicate that there was a sufficiently close relationship of proximity that a duty of care, breach of which would give rise to liability for economic loss, would almost certainly have arisen.

157. Criticism was raised by Counsel for the other parties that that decision had been overruled, impliedly if not explicitly, by the House of Lords in giving the decision in the Murphy case. That criticism is wrong. It is based on extrapolation from quotations of sentences and parts thereof out of context and fails to address the true issues that were decided in either the Anns case, the Murphy case or the Pirelli case.

158. When Lord Keith in the Murphy case said that the Anns decision should be overruled and that all cases following Anns should be overruled, that was in the context of the specific principle in the Anns case with which the Murphy case was concerned. That can be seen from p.472 of the Murphy case. Lord Keith considered that the Anns case was wrongly decided as regards the scope of any private law duty of care resting upon local authorities in relation to their function of taking steps to secure compliance with buildings bye laws or regulations. Specifically the authority owed no duty of care to the purchaser of a house of which the local authority had had a statutory duty to examine the plans. That was the matter that was being dealt with in the Murphy case and that is what was overruled. What can be said, however, is that caution needs to be adopted in considering the case because of the distinction between physical damage and economic loss.

159. The issue in the Pirelli case was whether the limitation period ran from the date when the physical damage occurred, or from the time when it ought reasonably to have been discovered. In the words of Lord Fraser it was whether in an action founded on negligence in the design or workmanship of a building time ran for the purposes of limitation from a date before the damage to the building was discovered or ought with reasonable diligence to have been discovered.

160. The main point on the appeal was whether the decision of the Court of Appeal in Sparham-Souter v. Town and Country Developments (Essex) Ltd [1976] Q.B. 858 had been correct. In that case a house had been built with inadequate foundations. The Court of Appeal had decided that the cause of action did not accrue until such time as the plaintiff discovered physical damage caused by the bad work. In so far as any reliance was made on anything said in the Anns case, there was a reference at p.17 to the fact that in the Anns case, the cause of action was said to arise when the building was in such a state that there was a present or imminent danger to the health or safety of persons occupying it. Lord Fraser then went on at the foot of p.17 of the report to draw attention to the fact that in the case he was dealing with that was not the basis of the damage relied upon.

161. The reasoning for the decision in the Pirelli case is however instructive. In overruling the Sparham-Souter case the House of Lords was influenced particularly by the reasoning in Cartledge v. E. Jopling and Sons Ltd. [1963] A.C. 758. The principle in that case was that a cause of action accrued in respect of a wrongful act that had caused personal injury even when that injury was unknown and could not be discovered by the Plaintiff. The Plaintiffs in the Pirelli case argued that it was possible in some cases that there was a period when a flaw or defect was latent, that could be followed by a period when the flaw or defect existed in some physical form that had not been discovered or could not be discovered followed by a period when the flaw or defect was obvious. The Plaintiffs in the Pirelli case had argued that no parallel could be drawn with the reasoning in the Cartledge case because in the Cartledge case, the period of latency did not exist and on the finding of the Court in the Cartledge case, the damage had existed from day 1, even though it might not have been discoverable: see page 10 of the report where the plaintiff's argument is reported.

162. Lord Fraser at page 16 pointed out that a man who had inhaled particles of dust may unbeknown to him suffer from pneumoconiosis. It was clear that if he was in such a condition even though that was unknown to him, he had suffered damage which, in appropriate circumstances, would constitute damage for the purpose of founding a cause of action. Likewise, Lord Fraser said at letter C :

"Just as the owner of the house may sell the house before the damage is discovered, and may suffer no financial loss, so the man with the injured body may die before pneumoconiosis becomes apparent, and he may also suffer no financial loss. But in both cases they have a damaged article when, but for the defendant's negligence, they would have a sound one."

163. On that basis, Lord Fraser considered that damage would have occurred even if the person wronged was not aware of it. Lord Fraser then went on to reinforce his position by reference to Lord Pearce's statement in Cartledge at pp.778-779 where he pointed out that it would be an absurd position if a man who was suffering from pneumoconiosis did not have a cause of action because he did not know of it but did have a cause of action immediately upon the taking of an x-ray photograph which revealed the damage. Lord Fraser then drew the distinction between damage which had occurred to the Plaintiff's body, for example, by inhaling dust and the latent defect in a building.

164. It is apparent from his consideration that as far as he was concerned, the damage to a plaintiff's body by the inhaling of dust was immediate. As regards a latent defect, it seems that the Judge considered that it was a question of fact in each case as to whether the latent defect was such that damage to the building was inevitable. He said for example "unless the defect is very gross, it may never lead to any damage at all to the building." He likened a latent defect not to damage which had occurred to a person's body but to a natural weakness in the body which may never develop into a disease or injury. It was in that context that he said that the cause of action would not accrue until damage had actually occurred. That damage might consist of cracks or other defects coming into existence even though the cracks might be undiscovered and undiscoverable. In considering this, he then said : "There may perhaps be cases where the defect is so gross that the building is doomed from the start, where the owner's cause of action will accrue as soon as it is built ....." He said almost exactly the same two pages later at the foot of page 18 of his judgment.

165. Clearly what Lord Fraser was considering was the question of when physical damage occurred. Implicitly he regarded the physical damage as being the foundation of the plaintiff's right of action. It depended on the nature of the latent defect as to whether that damage would be bound to occur or was such that it might only occur. If it were bound to occur then the law could look upon that damage as having occurred since it was bound to occur. But if the physical damage was not bound to occur but might occur, then unless it occurred, it was not damage for the purposes of his consideration.

166. For the purposes of the facts of the Pirelli case, it did not matter from the point of view of the expiry of the limitation period as to whether the date of the completion of the building was taken or the date when the cracks must have appeared unbeknown to the plaintiff. On either date, the limitation period would have expired. The approach in the Pirelli case was the same in principle as that in the Nykredit case : first the nature of the damage was identified and then the date when it occurred was identified.

167. By concentrating on physical damage as the cause of action rather than the economic loss caused by the creation of a building which had design defects sight may have been lost of the fact that even a building with a latent defect may be less valuable to its owner even though physical damage may not have occurred. As an illustration if per chance the plaintiff had wished to sell its bank building immediately upon the completion thereof and a purchaser had not only had a physical survey carried out but had inspected the building plans and discovered that a proper allowance had not been made for shrinkage, creep and thermal expansion and that the fixing means were an inappropriate design when taking into account the thickness of the cladding such that the cladding may well fail, the value of the building may well have diminished. In such circumstances, allowance would no doubt be demanded by the purchaser for the potential hazard to the cladding. In principle, I see no reason why an economic loss of that nature should not be recoverable. Such a conclusion indeed seems to be precisely that to which Lord Keith came in the Murphy case at page 466F. If that were correct, the cause of action in this case would arise upon the completion of the building and the payment therefor by the Plaintiff since the Plaintiff would have obtained a building with an inherent latent defect which may or may not give rise to physical damage.

168. Such a conclusion that the original design of the building was such that the building was defective does not seem at variance with the finding of the Judge. He said at amongst other places :

"I believe, it is much more likely, as the other experts say, that the designer simply made mistakes; mistakes that no competent designer purporting to have specialist skills in this field should have made." (page 3)

"The cause of the damage was the design by Mr. Ragaglini, which was inadequate to cope with movement." (page 14)

169. Evidently, the Judge below considered that the defects in the design were such that physical damage was likely to be brought about. On this basis, I consider that the point of time at which the Plaintiff suffered economic loss by reason of the defective design was the date when it acquired and paid for the building with the defective design. For the purposes of this case I take that to be the date of practical completion namely 7th March 1983.

Alternative approach on the basis of physical change

170. If I were wrong in that approach and it would be necessary in order to bring an action for economic loss because of a defective design or construction of the building to show that damage had actually occurred to the building or was an inevitable consequence, then it seems to me that on the facts of this case that, even if it could not be said that damage had occurred upon the completion of the building, it must have been so approximately two years thereafter. The cladding work was completed in July of 1982 and the occupation permit was issued on 9th November 1982. From the evidence of the expert witnesses and in particular Mr. Kinnear, the witness called on behalf of the Plaintiff, it is apparent that the effects of shrinkage due to drying and creep would effectively have reached their maxima around two years after the construction of the concrete frame. On the dates given that must have taken place by about July 1984. Thereafter, it would seem from the expert evidence and the agreed facts that the main cause of the effects of the breakdown of the cladding was the cyclical thermal movement.

171. It was Mr. Kinnear's evidence, for example, in Appendix F of his report that between 1985 and 1990, there would have been no discernible increase in damage above that which was derived from the initial shortening of the building caused by shrinkage and creep in the first two years. As a graph which he has exhibited in Appendix F shows, there does appear to have been some damage to the cladding in those early years. Indeed it is evident from Mr. Kinnear's oral evidence that his view was that if any person had inspected the building with a view to purchasing it, at least about 1986 there must have been spalls in the cladding which would have been sufficient to alert a potential purchaser to have asked for assurances of some kind and probably required an expert to look at the building and try to explain the defects. In view of the knowledge available at the time, it might have been difficult to have found the appropriate expert but nevertheless his evidence was supported by other experts including in particular Mr. Shillinglaw.

172. In any event, it seems to me, on Mr. Kinnear's evidence which was to the effect that after the initial failure of cladding, the Restenburg granite was likely to fail increasingly after a period of ten years hence even if the cladding of the building was not doomed to failure from the very beginning i.e. 1982, it must have been doomed to failure and in all probability did fail after the initial shrinkage and creep had taken place i.e. 1984. This was particularly so because this would have partly been dependent, apparently, on the short period between the completion of the concrete construction and the fixing of the granite. In Mr. Fong's evidence it showed that there was hardly any delay between the completion of the concrete and the fixing of the granite. On this basis, it seems that physical defects in the cladding would have emerged at least by 1985. On that footing, the cause of action would have accrued more than 6 years before the 1st July 1991 and the action would have been statute barred.

173. The findings of the Judge himself confirm his view that physical damage would have been occurred from about 1984. For example he said at page 22 :

"The view of the experts is that physical damage to the cladding system started to occur within the first few years after 1982. From then, over the years, the physical damage got worse until, at some uncertain time, risk of injury to the public was unacceptable."

Then at page 25 he said:

"Regarding the marks on the granite cladding in 1984 and 1985, I do not accept that any reasonable owner seeing these marks would have concluded that there were defects in the cladding justifying the calling in of an expert."

174. This latter passage appears to accept the existence of physical damage at that time but is dealing with the question of whether it would have put the building owner on notice to make investigations as to the cause of the damage.

The Invercargill case

175. The Judge below decided the question of the limitation of action on the reasoning of the case of Invercargill City Council v Hamlin [1996] A.C. 624. The Invercargill decision was a decision of the Privy Council on an appeal from New Zealand. In short the basis of that decision was that the cause of action in negligence for economic loss did not accrue until the market value of the building was depreciated by reason of the physical damage. As such the cause of action accrued when a reasonable owner of the building would have called in an expert to examine the state of the building in respect of the defects found to exist. It was at that stage that the defects would have been obvious to a potential buyer and hence the market value of the house would then be depreciated.

176. There had there been a consistent line of authority in New Zealand upon which that decision was founded. The Privy Council referred to the Pirelli decision as an unfortunate decision, not merely because the outcome was unreasonable but because it was thought that criticisms were justified that, the damage being economic loss, it was not until the loss had been actually suffered that damage had occurred and the cause of action had accrued.

177. It seems to me that one important and fundamental distinction arises at least so far as Hong Kong is concerned. The changes effected by inter alia Section 31 of the Limitation Ordinance are modeled on the Latent Damage Act 1986. The purpose of that Act was to cater for the injustice that would occur by reason of a rigid application of the Pirelli reasoning. Those amendments only have meaning if a cause of action could arise at a time when the Plaintiff were ignorant of the accrual of his cause of action. There was no corresponding provision in New Zealand.

178. Given the existence now of Section 31 of the Limitation Ordinance there is no need to strain an interpretation of the facts that would give the date of accrual of a cause of action that would be of practical benefit as opposed to injustice to a Plaintiff. Indeed to do so would perhaps be arbitrary. As has been pointed in respect of personal injuries it would be curious if a person, who does not originally know of latent damage, could have a cause of action dependant on the chance acquisition of knowledge in respect of it. So too with a building, if it has a latent defect and it were said that the cause of action had not arisen because the building owner were unaware of the defect, it would be postponing the date too late to say the action only arose when a reasonable owner would become aware of the defect, since chance might give the owner relevant knowledge before that date. If it did, would the building owner not have a cause of action for the reason that a reasonable owner would not be aware of the defect or would not have been put on notice to make investigations? This was a point made by Lord Keith at page 466F. Furthermore, logical though it might seem to base a cause of action for economic loss on the time when a reasonable owner might be expected to know of the cause of loss, which, for example, might diminish the sale value of his building, that logicality loses some of its force when it is remembered that there is no duty of disclosure of defects on the seller of a building. Hence a building owner might know of the defect but it does not mean he has suffered any loss unless other people also know of the defect.

179. I would mention here that there seems to have been some confusion as to the effect of Sections 4 and 31 of the Limitation Ordinance. At page 26 of the Judgment it is stated that the actions were brought within the time allowed by both sections. Since the sections are mutually exclusive and are dependent on different facts it is not easy to see how the actions could have been brought within the time limits of both sections.

180. Reliance was placed at page 21 of the Judgment below on a quotation which Lord Keith made in the Murphy case from the judgment of Deane J. in Council of the Shire of Sutherland v Heyman 157 C.L.R. 424. The words quoted were ".... any loss or injury is sustained only at the time when [the defect] is first known or manifest." However, that passage was cited by Lord Keith for the purpose of considering whether the damage in the Anns case economic loss. Thus just before citing the passage Lord Keith said at page 466H:

"In my opinion it must now be recognised that, although the damage in Anns was characterised as physical damage by Lord Wilberforce, it was purely economic loss."

181. The passage cited by Lord Keith was a long passage and dealt specifically with Anns and whether the damage there was economic loss. It concluded by saying that any loss incurred by reason of defective foundations by a person who acquires an interest in a building was economic loss. Lord Keith then said:

"I find myself in respectful agreement with the reasoning contained in this passage, which seems to me to be incontrovertible.

It being recognised that the nature of the loss held to be recoverable in Anns was pure economic loss, the next point...."

182. Hence Lord Keith was considering the question of whether Anns was dealing with economic loss. This had been the crucial point in Deane J.'s judgment. The observations, which Deane J. had made in the passage cited, on the rival arguments as to the date of accrual of the cause of action were incidental and were not relevant in the Murphy case which was not a case where a limitation point was relevant.

Conclusion

183. In my view the Judgment of the Court below dismissing the Action against the 1st Defendant should be upheld and the judgment against the 2nd to 5th Defendants should be set aside. An order nisi should be made that the costs here and below should be to the Defendants.

184. Since there is no liability on the part of the 1st Defendant, the third party proceedings also fail. Whereas normally the costs would be payable in the first instance by 1st Defendant but recoverable against the Plaintiff, I consider that in view of the stance taken by the 2nd to 5th Defendants in trying to establish liability in negligence against the 1st Defendant, which has failed, the costs of all the Defendants both in the main action and in the third party proceedings should be dealt with as one.

Mayo, J.A.:

185. The result of this is that P&T's appeal is allowed and BEA's appeal against TW is dismissed. An order nisi is made that BEA will pay all the Defendants' costs.