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

FACV No. 21 of 1998

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 21 OF 1998 (CIVIL)

(ON APPEAL FROM CACV NOS. 185 AND 189 OF 1997)

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J U D G M E N T

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Mr Justice Litton PJ:

Introduction

1. This case concerns the granite cladding to the new Bank of East Asia head-quarters building at Des Voeux Road Central. The development was completed at the beginning of 1983. The building consists of a tower block 23-storeys high, standing on a podium of 5 storeys. The architects and structural engineers for the project were Messrs. Palmer and Turner ("Palmer & Turner") and the nominated sub-contractors for the cladding were Tsien Wui Marble Factory Ltd ("TW").

2. Two factors render this a difficult case for this Court: (1) At trial, because of admissions made on behalf of Palmer & Turner, the tort of negligence was assumed to have been established; the ingredients constituting the cause of action were not explored in depth in the courts below. (2) Because of those admissions, essential findings of fact, going to the heart of a key issue, were not made by the trial court; they were barely touched upon in the Court of Appeal. This explains the length of this judgment.

3. The Bank's case against Palmer & Turner was, and is now, in negligence alone, counsel for the Bank having conceded at trial that the contractual claim was time-barred. Further, it was admitted at trial by Palmer & Turner that they were in breach of their duty of care to the Bank. The terms of their admissions will need examination later. Subject to the defence based upon the Limitation Ordinance, Cap. 347, it was conceded by Palmer & Turner that they were liable to the Bank for damages; these were assessed by the trial judge in the sum of $38,502,951.85. The history of this piece of litigation is fully set out in Mr Justice Ching PJ's judgment and needs no repetition.

4. Before this Court, the entire focus of the case, as far as Palmer & Turner are concerned, is on the meaning of the words the date on which the cause of action accrued as they appear in the relevant provisions of the Limitation Ordinance. As the decision on this issue is also relevant to TW it would be convenient to deal with the case against Palmer & Turner first.

The focus of the issue

5. This point needs emphasis at the outset: The barring of a party's remedy by the imposition of a time limit for the institution of proceedings is a consequence of statute. At common law there is no limitation period within which actions must be brought. Rightly or wrongly the legislature has, as a matter of policy, decided that certain actions should not be brought after expiration of certain time; that stale claims (as delineated within the statutory scheme) should not be entertained. The function of the court, in adjudicating upon a statute of limitation defence, is not to consider upon the evidence where the "justice" of the case might be thought to lie: its sole function is to give effect to the true intentions of the statute upon the facts disclosed. There is, of course, one notable exception to this. In the field of personal injury claims the court has been given power to override statutory time limits in certain circumstances: see section 30 of the Limitation Ordinance. These provisions have no relevance to this case.

6. In England the matter goes back to the Limitation Act of 1623 which prevailed with some modifications for over 300 years until it was replaced by the Limitation Act of 1939. In Hong Kong the statutory regime commenced with the Limitation Ordinance of 1965: Before that the English statutes enacted before 1843 (the year when a legislature for the new colony was first established) generally applied by virtue of section 5 of the Supreme Court Ordinance.

The Limitation Ordinance : Legislative history

7. A review of the legislative history is necessary, as sections of the Limitation Ordinance have been drafted with situations such as the present in mind: That is, where physical damage to a building resulted from acts or omissions of the defendant, but this was not appreciated for some time by the plaintiff: When the plaintiff eventually brought proceedings, it was faced with a limitation defence.

8. The 1965 Hong Kong statute is based upon equivalent provisions of the United Kingdom Limitation Act 1939, as amended by the Law Reform (Limitation of Actions, etc.) Act 1954 and the Limitation Act 1963. In construing the provisions of the Hong Kong statute the courts would obviously follow the way the English courts have interpreted and applied the equivalent provisions of the English Acts, there being no circumstances relevant to the two different jurisdictions which might indicate that our courts could or should come to a different conclusion, when the same words are being construed.

9. The key provision, for the purposes of this case, is section 4(1). This is in terms identical to section 2(1) of the Limitation Act 1939. As relevant it reads:

10. The expression cause of action, as it appears in the statute, has been part of the legal vocabulary for a long time. In an action for tortious liability the cause of action accrues the moment the wrongful act or omission causes damage. This concept applies across the whole field of the law of tort, irrespective of whether the damage is in the nature of personal injuries or damage to property or other interests of the plaintiff. Cartledge v. E. Jopling & Sons Ltd [1963] AC 758, a leading case in this field, concerned personal injuries. There the House of Lords held that a cause of action accrued to a person who, by the effect of inhaling noxious dust, had suffered actionable harm, even though he showed no symptoms and was unaware of the onset of pneumoconiosis: hence an action founded on tort was held to be statute-barred before the plaintiff became aware he had a cause of action. At p. 772 Lord Reid, regretting the result, said:

11. As the question depended on statute, it was impossible to reach the desired result: Fraud, concealment and mistake were, as Lord Reid explained, already covered by the Act and substantially enlarged the time for bringing proceedings: That occupied a large field, but not so large as to include a case where the cause of action arose from latent damage, such as that of the gradual onset of pneumoconiosis. The other members of the House of Lords concurred in the result.

12. This led to Parliament passing the Limitation Act 1963 which extended the time for bringing proceedings for personal injuries, leaving the law unchanged with regard to actions for other forms of tortious liability: in particular, actions relating to latent damage to buildings. The Hong Kong legislature followed suit, by enacting section 27 of the Limitation Ordinance, applicable only to actions for personal injuries. Section 27(2) excluded s.4 from such actions. Except where death resulted, the period for bringing proceedings was, by s.27(4) extended to:

13. Knowledge for this purpose included knowledge that the injury was significant and was attributable to the act or omission constituting negligence.

Pirelli

14. The next important event, which ultimately led the Hong Kong legislature to enact sections 31 & 32 of the Limitation Ordinance, was the decision of the House of Lords in Pirelli General Cable Works Ltd v. Oscar Faber & Partners [1983] 2 AC 1. There, factory owners had engaged consulting engineers to design a chimney for their factory. The specification regarding the material for the inner lining of the chimney was defective. The lining cracked under the impact of hot flue gases but this went undetected. By the time the outer casing had also cracked for the same reason and the damage was discovered, over 7 years had elapsed. The House of Lords held, reversing the lower courts, that the cause of action in tort accrued when the physical damage occurred, not when the damage was discovered or should, with reasonable diligence, have been discoverable. As the cause of action had accrued long before the crack in the outer casing was discovered - and therefore even longer before the proceedings were instituted - s.2(1) of the Limitation Act applied and the action was time-barred.

15. Pirelli followed Cartledge v. E. Jopling, the House of Lords holding that though the latter concerned personal injuries the same principles applied for determining when the cause of action accrued, in terms of s.2(1) of the Act. At p. 15-A to 16-C Lord Fraser of Tullybelton specifically dealt with a passage in Geoffrey Lane LJ's judgment in an earlier case Sparham-Souter v. Town and Country Developments (Essex) Ltd [1976] QB 858 at 880F. There, Geoffrey Lane LJ had contrasted the position of the building owner in Sparham-Souter with that of the injured person in Cartledge v. E. Jopling and said there was no proper analogy between the two situations. Lord Fraser expressly disagreed and said:

16. As mentioned earlier, the period for initiating proceedings in personal injuries cases was enlarged by statutory amendment in 1963, by bringing in the date of the plaintiff's knowledge. Since the position regarding latent damage in buildings was left unaffected by Parliament, the House of Lords in Pirelli was unable to conclude, as the factory owner had urged, that the cause of action only accrued when the latent defect was discovered or with reasonable diligence discoverable.

1991 amendments to the Limitation Ordinance

17. This led the United Kingdom Parliament to enact the Latent Damage Act 1986 which in turn caused the Hong Kong legislature to pass the 1991 amendments to the Limitation Ordinance. Of relevance are the provisions of s.31, 32 and 38A.

18. Section 31, as relevant, reads:

19. Section 32 introduced what has been called "the long stop" providing that in any event no action for damages for negligence, other than one to which s.27 applies, shall be brought after the expiration of 15 years.

20. Section 38A contains transitional provisions relating to the 1991 amendments. Subsection (2)(b) provides that nothing in Section 31 shall enable any action to be brought which was statute barred before 1 July 1991 (the day on which the amendments came into effect).

21. Thus, as can be seen, the legislature has, by the 1991 amendments, specifically dealt with latent defects and in so doing struck a balance between plaintiffs and defendants: when a plaintiff has no knowledge of the relevant facts concerning the damage to his property the time does not begin to run against him: but this does not mean that a defendant is exposed to the risk of a suit forever: after the expiration of 15 years the "long stop" provision - section 32 - bars all claims. But a cause of action already barred before 1 July 1991 is not affected by those amendments.

"Cause of action"

22. What falls for consideration in this case is a seemingly simple question: When did the Bank's cause of action against the defendants, in terms of s.4(1) of the Ordinance, accrue?

23. Cause of action, as mentioned earlier, is a term of art; it goes right across the whole gamut of legal proceedings. The phrase comprises those facts which a plaintiff must prove to support his right to judgment in court: see Central Electricity Board v. Halifax Corporation [1963] AC 785 at 800.

24. What, then, was the Bank required to prove as against Palmer & Turner to obtain judgment against them? Before the trial judge counsel for Palmer & Turner made admissions in the following terms:

25. Under the common law, where a relationship of proximity exists between the parties with respect to both the relevant class of act or omission and the relevant damage, a duty of care arises. Given that the relevant damage in this case is the economic loss suffered by the Bank arising from Palmer & Turner's failure to exercise due care in passing the plans for the cladding, two ways were open in legal theory to the Bank to establishing liability against them:

26. If one were to take a broad commonsense view of the matter, without too much refinement, it could be said that in these building cases, where hidden defects in design eventually result in physical damage to the structure, causing loss to the owner's pocket in repair costs, the harm done is not solely economic: It is physical damage to the building as well. That was how Lord Denning MR approached the matter in Dutton v. Bognor Regis Urban District Council [1972] 1 QB 373, as will be seen later. This approach may not appeal to the purist, as it "conflates" defects in the building itself and physical damage to the property (and the attendant risk of injury to third parties) caused by those defects: see observations to this effect in Brennan J's dissenting judgment in Bryan v. Maloney (1995) 69 ALJR 375 at 386. But the life of the law is not pure logic. As Lord Wright said in Liesbosch Dredger v. Edison S.S. [1933] AC 449 at 460:

Findlay J's judgment

27. In summary, the judge found that it was the faulty design of the cladding system which led eventually to the physical damage to the granite slabs. When serious spalling and cracking started to appear, and professional reports indicated that the deterioration would continue, and there was a risk of parts of the granite slabs falling off and damaging third parties, the Bank took the decision to replace the entire cladding, resulting in the loss computed at $38,502,951.

28. Having regard to the admissions made by Palmer & Turner the judge did not regard it necessary to set out in detail the design of the cladding system and how, progressively, over many years, various features of that design caused the physical damage to occur. As to the time when serious damage first appeared the judge's finding was ambiguous. He said:

29. This report, in the form of an internal Hong Kong Land memorandum, was not passed on to the Bank. The memorandum spoke of some granite tiles having chipped edges, and of water stains and leaching stains being visible in some places; but, as the judge held, the impression given by the report was that the defects were "unremarkable incidents of wear and tear over the years" and if the report had been brought to the Bank's attention, it would have been " reassuring rather than alarming".

30. It was not until about June 1993 that the Bank became aware of the possibility of serious defects in the cladding. A memorandum of the Bank's new property managers Messrs. Jones Lang Wootton dated 23 June 1993 made the following points:

31. In July 1993 the owners of an adjoining building wrote to the Bank to say that some panels were displaced and there was a possibility of some falling which would jeopardize the safety of their maintenance staff.

32. From about this time onwards, the problems grew "exponentially". A report by Mr Kinnear (a foremost expert on cladding) dated 18 March 1997 set out the position thus:

33. Eventually, when the Bank's case came to be pleaded against Palmer & Turner, the allegations of negligence, as regards their failure to produce or procure an adequate design for the cladding, were particularized thus:

34. The judge's approach was to follow the decision of the Privy Council in Invercargill City Council v. Hamlin [1996] AC 624. He held that the damage suffered by the Bank as a result of the faulty design was the diminution in the market value of the building or the cost of reinstatement of the cladding. As to the time when the cause of action first accrued, he concluded that the loss suffered by the Bank occurred when the inadequacy of the design was first known or manifest: known that is with the help of expert advice. Until the fault was discovered, or at the least discoverable, it was not possible to say that the market value of the building had been affected, or that reinstatement cost might be incurred. As to this the judge said:

35. The judge therefore concluded that the writ issued against Palmer & Turner (25 May 1996) was within time.

The Court of Appeal

36. In the Court of Appeal Palmer & Turner's primary contention was that the trial judge had erred because he focussed his attention upon the physical manifestations of damage and not the detriment to the Bank's economic interests arising from the faulty design. The argument for the architects was put in this way: The Bank suffered damage at around the time when the cladding work was completed and in any case no later than when the final certificates were issued by the architects and payment made thereon by the Bank: By this time, the Bank had clearly relied upon, and acted upon, the exercise of care and skill by the architects in rendering their services; thus, subject to the question of damage, the Bank had a complete cause of action based upon Hedley Byrne v Heller principles; as to damage, what the Bank had was a building with a cladding that was defectively designed and which, sooner or later, was going to fail: the fact that the full measure of loss might not be ascertainable for some time did not mean that the Bank had suffered no pecuniary loss: the detriment suffered by the Bank was in having sub-standard building works when it had paid for properly designed works: This was what counsel Mr Michael Thomas SC in the course of argument before us called a "cause of action for modern negligence without physical damage of the Hedley Byrne kind".

37. In Hedley Byrne v. Heller there was no physical injury to person or property: The plaintiff suffered pure economic loss as a result of reliance upon a statement about the financial standing of a company negligently made by the defendant. The House of Lords held that but for a disclaimer of liability the defendant would have been liable in damages: Thereby reversing the long-established rule that, in the absence of contract, an action for negligent misrepresentation could not be maintained. Since then, the Hedley Byrne principle has been extended to a variety of situations. It is not confined to bankers being held liable for negligence in furnishing references: For instance, solicitors who negligently failed to carry out the instructions of his client in drawing up a will were held liable to the intended beneficiaries: White v. Jones [1995] 2 AC 207. The governing principle is to be found in Lord Morris of Borth-y-Gest's speech in Hedley Byrne at 502-3 as follows:

38. In Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145 at 186-H Lord Goff of Chieveley said that the importance of Hedley Byrne "rests in the establishment of the principle upon which liability may arise in tortious negligence in respect of services (including advice) which are rendered for another, gratuitously or otherwise, but are negligently performed - viz., an assumption of responsibility coupled with reliance by the plaintiff which, in all the circumstances, makes it appropriate that a remedy in law should be available for such negligence." This tortious liability can coincide with liability founded upon contract.

39. Mr Thomas submits in this case that Palmer & Turner clearly did possess a special skill and did undertake to apply that skill for the Bank's benefit; the Bank relied upon them in approving the design for the cladding; since that cladding was sooner or later going to fail, the economic loss was suffered the moment the cladding was erected.

Palmer & Turner's primary contention accepted

40. In the Court of Appeal this argument found favour with all 3 Justices of Appeal. Hence the judgment against Palmer & Turner was set aside. Rogers JA puts it thus:

The Court of Appeal's approach to the law

41. Mayo JA said that one of the core issues was whether the court should "continue to follow United Kingdom law in limitation or whether it should develop along similar lines to Commonwealth countries such as New Zealand, Australia and Canada". It is not clear what Mayo JA meant by "United Kingdom law on limitation", for there has been much upheaval in the United Kingdom in this area of the law in recent years: Cooke P's judgment in the New Zealand Court of Appeal in Invercargill [1994] 3 NZLR 513 at 519 line 35 to 522 line 5 gives a clear review of this development.

42. In considering this development, a point needs emphasis. A modern high-rise building is a highly complex structure. Many components go into its making. A builder, or an architect or engineer, will owe duties in contract, but can be under no liability in tort to all the world to ensure that the building is free of all defects: Whether negligently caused or otherwise. Thus, in the English Law Commission report on "Civil Liability of Vendors and Lessors of Defective Premises" (Law Commission No. 40, dated 15 December 1970) the adjective "defective" is used in two senses. From the point of view of tort liability:

43. This followed classic Donoghue v. Stevenson lines, confining damages recoverable by the plaintiff to damage to the person or to property.

44. In the contractual sense the word "defective", as the Law Commission report points out, is used differently. A house is defective if its condition falls short of the standard of quality which the purchaser is entitled to expect: What the report refers to as "defects of quality". The Law Commission recommended amending the law to protect purchasers and lessees of dwellings (not commercial or industrial premises) to give them a right of action against builders for defects of quality. This then led to the Defective Premises Act 1972 - which has no counterpart in Hong Kong.

45. Here, Palmer & Turner accepted at trial that the plan they passed was "defective" in that it failed to provide adequately for the differential movement between the cladding and the structure of the building: See paragraph (vii) of the admissions referred to earlier. This led eventually to the spalling and cracking of some of the slabs, exposing the Bank to the risk of endangering others. Formulated in this way, the physical damage was an ingredient of the cause of action against the architects. What the Court of Appeal accepted was something quite radical in this field of law: The court should unhook the ingredient of physical damage from the cause of action, viewing the case as one of pure economic loss. The difficulty facing the Court of Appeal was this: Both parties were urging this radical approach with opposing results. The defendants submitted that, adopting this approach, the cause of action accrued the moment the Bank acted upon the "advice" of the architects (in 1982), whilst the plaintiff urged that it accrued when diminution in the market value of the building was reasonably discoverable (in 1993).

46. The notion that the discipline of law might have required the court to have regard to the statutory scheme governing limitation periods for latent defects in buildings, in particular its historical development, seems to have found little favour in the courts below.

47. In these circumstances it is necessary to go back to first principles.

First principles

48. The early cases on latent damage - Dutton v. Bognor Regis U.D.C., Sparham-Souter, Pirelli etc - all proceeded along Donoghue v. Stevenson lines. Dutton concerned a claim for damages brought by a house owner arising from defective foundations. The trial judge held that the "neighbour" principle in Donoghue v. Stevenson, as subsequently developed, applied to the case. He awarded damages against the local council, for failure to inspect the foundations properly, based on the estimated cost of repair, surveyor's fees and diminution in the value of the house. The council appealed. In the Court of Appeal at 393-F Lord Denning MR said that the distinction between chattels and real property was quite unsustainable, and agreed with the judge that the case could be brought within Donoghue v. Stevenson principles (see p.397-C); it was a question whether the court should apply them: See also Sachs LJ at 405-B, 406-B and Stamp LJ at 409-H to 411-F. It was taken for granted that physical damage to the plaintiff's property was at the heart of the cause of action: Though, as Lord Denning MR remarked at 396-E, if the foundations were negligently passed but the owner discovered the defect before the building collapsed and injured someone, the council would still be liable: Even though, in such an instance, the damage suffered would be in the nature of economic loss: Damage to the plaintiff's pocket and not to the building. In Dutton, the appeal concerned only the council, the action against the builder having been settled before trial. It was however recognized that if the builder was not liable for damages for negligence in building the house, the council could not be liable for passing the bad work. So Dutton involved more than the council's liability for breach of bye-laws, and extended the scope of Donoghue v. Stevenson to cover economic loss flowing from structural damage to the house.

49. This approach was followed in New Zealand in Bowen v. Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 where Richmond P in the Court of Appeal, at 410, held that a builder, under Donoghue v. Stevenson principles, was under a duty of care not to create latent sources of physical damage to the person or property of third persons whom he ought reasonably to foresee as likely to be affected thereby. And he added:

50. Although Richmond P dissented on the facts, the above statement of principle had the support of both Woodhouse and Cooke JJ.

51. Among the items of damages claimed was $2,000 for the diminution in value of the house. This item was allowed, as it was economic loss "directly and immediately connected with the structural damage to the building" (see p.411 line 33, p.422 line 1 and p.428 line 29).

52. In so concluding the New Zealand court gave careful consideration to the argument that, upon analysis, the damage suffered by the plaintiff was pure economic loss: A diminution in the value of the house, it was suggested, did not rank for consideration as physical injury (thereby excluding the case from Donoghue v. Stevenson principles). This argument was rejected. At 417 Woodhouse J said:

53. Likewise Cooke J did not think that a claim for diminution in the market value of the house stood on a different footing. At p.425 he said:

54. The reasoning in Bowen v. Paramount Builders was followed in Anns v. Merton London Borough Council [1978] AC 728 where, dealing with the basis for awarding damages arising from latent defects, Lord Wilberforce, with whose speech Lord Diplock, Lord Simon of Glaisdale and Lord Russell of Killowen agreed, said at 759 that the damages recoverable would include damage to the house itself. And he added:

55. Pirelli, decided in the House of Lords in 1982, was an action against consulting engineers, but the trial judge's finding of negligence against them was not challenged on appeal, so the precise cause of action was not under scrutiny on appeal in Pirelli: It was common ground that the principles of Cartledge v. Jopling (a case of personal injuries along classic Donoghue v. Stevenson lines) applied in that case. Many cases followed Pirelli, in reliance upon the same principle: For instance, London Congregational Union Inc. v. Harriss & Harriss (a firm) [1988] 1 All ER 15 (concerning negligently designed drains which caused no physical damage until flooding occurred some time later) and Ketteman v. Hansel Properties Ltd [1987] 1 AC 189 (an action against architects for breach of duty in the design and siting of houses: Time ran from the date when the walls started to crack). Up to this point, the law was reasonably straight-forward: The common law duty owed by builders and professionals such as architects and engineers under the "neighbour" principle is a duty not to create latent sources of physical danger to the person or property of third persons whom they ought reasonably to foresee as likely to be affected thereby. If the latent defect causes actual physical damage to the structure of the building itself, rather than other property, the defendant is still liable. The analysis focuses upon physical damage; and, as can be seen in Pirelli itself, the court ignores the somewhat theoretical question of "pure" economic loss, that is to say breach of duty which does not lead to physical damage.

56. This approach is founded upon common sense. The courts have, long before Pirelli, adopted this principle in areas other than buildings: see for example SCM (United Kingdom) Ltd v. W.J. Whittall & Son Ltd [1971] 1 QB 337 at 344B, where in a case of damage to an electric cable caused by contractors Lord Denning MR held that economic loss without damage to person or property arising from a negligent act is not recoverable as damages except where such loss is the immediate consequence of the negligence. See Winn LJ to the same effect at 352F. Spartan Steel & Alloys Ltd v. Martin & Co. (Contractors) Ltd [1972] 3 WLR 502 is to the same effect.

57. As to limitation, time begins to run when the first physical damage, in a real and substantial sense, occurs, whether the plaintiff knows about it or not: such harshness as might be caused by applying this principle having been mitigated since 1986 in England by the Latent Damage Act of that year, and in Hong Kong by the 1991 amendments.

58. So far the law presents a reasonably smooth surface; the only raggedness, perhaps, arising in this way: Lord Wilberforce in Anns would have the time clock starting a little later. He says at 760D that the cause of action arises "when the state of the building is such that there is present or imminent danger to the health or safety of persons occupying it" (emphasis added). This could be some considerable time after the first substantial crack occurs.

The divergence begins

59. Then came the trilogy of cases in the House of Lords, D&F Estates Ltd v. Church Commissioners for England [1989] AC 177, Murphy v. Brentwood District Council [1991] 1 AC 398 and Department of the Environment v. Thomas Bates & Son Ltd [1991] 1 AC 499 re-analysising the grounds on which, in cases of defective buildings, damages in tort for negligence may be recovered against builders and local authorities. Of particular relevance, for the purposes of the present case, is Murphy which concerned errors in the design of the foundation of a house: The passing of the plans by the local council was delegated to an independent contractor who failed to spot the errors in the design. The trial judge found that the extensive damage to the walls and pipes caused by subsidence posed an imminent danger to the safety and health of the plaintiff and, following Anns, awarded damages of ￡35,000, being the diminution in the market value of the house. On appeal the Court of Appeal took it for granted that the cause of action was based on the "ordinary common law duty of care" (see p.408-G). The question was whether the council was under a duty to avoid pure economic loss suffered by the house owner who had bought it from the builders. The Court of Appeal, following Anns, upheld the judge. In the House of Lords the council's appeal was allowed: The House applied the practice statement of 1966 (Practice Statement (Judicial Precedent) [1966] 1 WLR 1234) and departed from Anns: If liability is to be cast upon builders for the economic loss suffered by subsequent owners (with whom they have no contractual relationship) as a result of their negligent acts, this could only proceed along the Hedley Byrne principle of reliance.

60. A point needs emphasis here. Murphy was not concerned with the Limitation Act nor with the question when a cause of action might have accrued. It was concerned with the way the House of Lords had, in Anns, approved Dutton thereby extending the Donoghue v. Stevenson principle to cover economic loss suffered by a plaintiff who had no contractual relationship with the defendant. The House of Lords in Murphy held that this went too far - thereby giving, as Sir Robin Cooke, President of the New Zealand Court of Appeal, remarked in an article in (1991) 107 LQR at 54, one of the most striking instances in the history of English law of judicial legislation. In "clawing back" on the scope of the tort of negligence in cases of pure economic loss, the House of Lords in Murphy was not directly concerned with Pirelli and Ketteman: Lord Keith of Kinkel alone, of the seven Law Lords, made observations on Pirelli, saying that where the plaintiff had a contractual relationship with the defendant, the case could be brought within the reliance principle in Hedley Byrne v. Heller (see p.466D-G). By this route Mr Thomas SC sought successfully in the present case to lead the Court of Appeal to look at the issue differently from the way it was seen in Pirelli and Ketteman: unhooking, as it were, the claim from the physical damage: If, following the Hedley Byrne approach, the cause of action could be said to arise when the Bank relied upon the professional advice of the architect, then the focus was no longer on physical damage to the building and what it might cost to repair that damage; it was on the diminution in the value of the building in consequence of the defect in the design for the cladding. The damage, if it occurred, must necessarily come much earlier in time. Mr Thomas was unable to cite a single case concerning latent damage to buildings where this new approach was applied, but he argued by way of analogy with cases concerning negligent solicitors and the like, where the cause of action accrued as soon as the advice was given, and was acted upon by the plaintiff. As mentioned earlier, this view of the law was accepted by the Court of Appeal.

How radical is this new approach?

61. What needs emphasis is this: What we are concerned with in this case is not simply some minor defect in quality which one sees everyday in a newly completed high-rise building. We are concerned with defects which, if not remedied, were very likely to cause serious injury to persons and property in the neighbourhood. As La Forest J said in Winnipeg Condominium Corporation v. Bird Construction Co. (1995) 74 BLR 1 at 10E-F - a case fairly close to the present one on the facts - "the degree of danger to persons and other property created by the negligent construction of a building is a cornerstone of the policy analysis that must take place in determining whether the cost of repair of the building is recoverable in tort" and, at least with respect to dangerous defects "compelling policy reasons exist for the imposition upon contractors of tortious liability for the cost of repair of these defects". La Forest J concluded that where a contractor (or any other person) is negligent in the planning or construction of a building, and where that building is found to contain defects resulting from such negligence which pose a real and substantial danger to the occupants, the reasonable cost of repairing the defects and putting the building back into a non-dangerous state are, in principle, recoverable in tort by the occupants. The Supreme Court of Canada therefore rejected the broad bar against recovery for pure economic loss as established in Murphy and concluded that as far as Canada was concerned Anns was still good law.

62. It is, of course, unnecessary for us to decide whether the statement of principle in Winnipeg Condominium applies in Hong Kong - thereby, in effect, deciding that the rejection of Anns by the House of Lords in Murphy is not a line we should follow - because in Winnipeg Condominium the plaintiff did not have the degree of proximity with the builder and the architects as the plaintiff has in this case. There was, in Winnipeg Condominium, no contractual relationship between them. Here, Palmer and Turner were directly engaged by the Bank as architects for the project, so proximity is not an issue. What Winnipeg Condominium tells us is that the Supreme Court of Canada at any rate was not prepared to go along with the House of Lords in D&F Estates and Murphy in throwing over the traditional approach: So long as the economic loss flows directly from the physical damage, it is recoverable by the plaintiff.

63. In so concluding, the Supreme Court of Canada was following the lead given by the majority of the High Court of Australia (Mason CJ, Deane and Gaudron JJ) in Bryan v. Maloney [1995] 69 ALJR 375 where, at 383, the majority said:

64. Brennan J, at 391, said that it was artificial to classify defects in a building as pure economic loss. He went on:

65. From what is said above, it can be seen that when Mayo JA said he was continuing to follow United Kingdom law on limitation, rather than Canadian or Australian law, he was in fact turning his face against the orthodox English view as established by Pirelli and Ketteman and was embarking on a new adventure, following the lead indicated by Lord Keith's dictum in Murphy at p.466D-G. There is no established authority in support of this approach. The Canadian and Australian authorities reject the Murphy approach, treating Anns (which looks to physical damage resulting in imminent danger to health and safety) as good law.

The Court of Appeal's difficulty

66. The implications of Murphy must be squarely faced. As one writer puts it, Murphy rips the heart from the most important piece of limitation reform this century, i.e. the 1986 Latent Damage Act: see "Limitation of actions - where are we now?" [1993] LMCLQ 34 at 56.

67. In a latent defect case the question as to when the plaintiff first suffered damage or economic loss turns on the evidence. The circumstances vary infinitely, and it is not possible to lay down general rules as to when this occurs. As pointed out by Mr I.N. Duncan Wallace QC in an article in (1989) 105 LQR at 57-8 some defects are of such a kind that a building may be unsafe but as yet not even microscopic damage has occurred; superficial cracking may be an early indication of movement and potential future structural failure, but cracking and settlement may often cease and present little or no further problem beyond a need for superficial redecoration; on the other hand it may continue progressively to a point which requires radical solutions.

68. There is no such thing as notional damage in the law. The court does not operate in a theoretical world. Justice does not require that a defendant pay damages in tort for a defect in design which is unlikely to lead to any damage to the building: see observations of Ralph Gibson LJ to this effect in London Congregational Union v. Harriss & Harriss at 24-L. That can be left to the law of contract. What the law of tort seeks to compensate a plaintiff for is actionable harm: harm which has been inflicted in a real sense: In borderline cases it is a question of degree, to be determined upon the facts.

69. Here, the Court of Appeal was handicapped in that the trial judge did not consider it necessary to make detailed findings of physical damage. He did not follow Pirelli, saying that Pirelli had been "re-interpreted" by Murphy and by Invercargill, and held that the date for the accrual of the cause of action was not, as the House of Lords had held in Pirelli, when physical damage first occurred but only when "the defects [were] so obvious that any reasonable person would have called in an expert and, having done so, would have been aware of defects and realised that a loss had been suffered".

70. In reversing the trial judge the Court of Appeal held that the Bank's cause of action for economic loss accrued when "the construction of the building was completed" (per Mayo JA) or when the Bank "acquired and paid for the building with the defective design" (per Rogers JA). Leong JA agreed with both, but gave no reasoned judgment of his own. Because of this approach, the Court of Appeal in its turn did not fully consider the evidence as to when physical damage first occurred.

71. Mayo JA simply said that the issue as to whether there had in fact been economic loss immediately after the building was completed had not been satisfactorily resolved: But he thought it unnecessary to resolve that issue by reference to the evidence because he accepted Mr Thomas' primary contention: That the Bank "had not got what it had bargained for namely a defect-free cladding system". This puts tortious liability on a par with breaches of contractual warranties.

72. Rogers JA said:

73. That was, in effect, the sum total of the evidence, bearing upon the time issue, considered by Rogers JA. His conclusion, concurred in by Leong JA, was as follows:

74. The evidence adduced at trial was highly complex. What Rogers JA referred to in his judgment was only part of the evidence. It is common ground that somewhere between the beginning of 1983 (when the building was completed) and the middle of 1993 (when the defects became progressively worse and experts were called in to advise), physical damage in the Pirelli sense did in fact occur; but as to when it first occurred, it falls to us in this Court to examine the evidence closely for the first time. This task is necessary for this reason: Unless Pirelli be dismissed out of hand, and the legislative changes introduced as a result of Pirelli be treated as irrelevant, then the time when real and substantial damage occurred as a result of the negligently executed design is an essential finding. It marks the time when the cause of action first accrued on Pirelli principles.

Alternative dates

75. Another point needs emphasizing. As mentioned earlier, s. 31 of the Limitation Ordinance took effect on 1 July 1991. By s.31(1), time only runs against a plaintiff when he acquires the knowledge necessary to bring an action for damages for negligence. This provision would assist the Bank by extending the time for bringing proceedings unless, by s.38A(2)(a), the cause of action was already barred when s.31 became effective. Thus, on Pirelli principles, if physical damage first occurred after 1 July 1985 - say, at about the time when Mr Michael Tang of Hong Kong Land made his survey in September 1989 - then s.31 would come into play; the action would not have been time barred on 1 July 1991; the inquiry would then shift to the question when the Bank first acquired "knowledge" of the facts supporting the bringing of an action in terms of subsections (5) and (7) of s.31. But if the cause of action was already barred when s.31 came into effect, then the question of knowledge is irrelevant under the statutory scheme: The cause of action remained barred.

Overview of the facts

76. Many cases of latent damage to buildings were cited to us in the course of argument, and even more are referred to in the printed cases. So far as can be seen, the present case stands unique upon its own facts. The changes in the structure of the Bank building were microscopic. They happened over many years. Many factors were at work. Six experts testified at the trial, but none said categorically that given the particular design of the cladding as devised by Mr Ragaglini it was bound to fail. The trial judge was criticized by the Court of Appeal for concentrating on physical damage to the building rather than the economic loss to the Bank caused by the defective design. But the reality on the ground reflects the judge's approach. There was evidence to the effect that a slab had to be replaced in 1991, another in 1992. Had an expert been brought in then, he would have seen that something was seriously amiss. But that was some 8 or 9 years after the completion of the building. Any suggestion that the Bank had, in 1982 when the building was first completed, incurred serious economic loss running into tens of millions of dollars would have been dismissed as absurd. Rogers JA, it will be recalled, did not think that the cladding was "doomed to failure" from the very beginning. When the problems really first emerged some ten years later the focus of every professional person concerned - Jones Lang Wootton the property managers, Mr Douglas Collins director of P&T Architects and Engineers Ltd, CDC Inc. consultants to TW, Binnie Consultants Ltd acting for the Bank - was on the cladding and not the drawings. In a report to TW dated 7 October 1993 CDC Inc. said that they had not seen any "design or as-built drawings", and yet they considered themselves in a position to render professional advice. It is therefore not surprising that the judge's focus should have been on the physical damage: the cracking and spalling of the granite slabs: this was the matter of concern to the parties and this eventually led to the entire cladding being replaced.

77. Further, this point needs emphasis: The case against Palmer & Turner proceeded on admissions: It was admitted that the architects knew or ought to have known that the defects as pleaded might constitute danger of physical injury to persons or properties in the vicinity of the Bank building. The duty owed to the Bank, as admitted by them, was a duty to avoid economic loss by acts or omissions giving rise to danger of physical injury to persons or properties: Unless bits of the stone cladding risked falling off there could be no such danger.

Rogers JA's test

78. As mentioned earlier, all 3 Justices of Appeal accepted Mr Thomas SC's primary contention. Rogers JA, in the passage of his judgment referred to above, put forward the possibility of the Bank wishing to sell the Bank building immediately upon completion and the purchaser, inspecting the building plans, then 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 might fail. This scenario is not supported by evidence. There was no evidence that a person, inspecting the plans at that time, with or without the help of professional advice, would or could have come to that conclusion.

Factors causing damage

79. There were many factors which contributed to the ultimate problem. Whilst, as a matter of short-hand, it is possible to put the problem down to "design fault", the matter was in fact far more complex. Take for example the phenomena known as drying shrinkage and creep. (Shrinkage refers to the drying of the concrete which causes minute movements of the concrete surfaces and creep refers to the settling of the building). Although shrinkage could cause diminutions of up to 1.5 mm per storey height, the evidence was that both phenomena would largely take place within the first few months of construction; thereafter movements due to these two factors would be progressively reduced. Dr. Shillinglaw said in his report of March 1997 that according to "average textbook curves" 40% of shrinkage and creep occurred within the first 28 days. Accordingly, if the cladding had been mounted on the concrete structure after it had been given a few months to dry and settle, then little allowance for these factors would have been necessary in the plans.

80. Another factor which contributed to some of the panels cracking and spalling was this: They were secured to the wall by means of fish-tail hooks. The hooks went into recesses in the granite slabs. They were then grouted in with cement thereby locking the slabs in place. Had a more malleable material been used, that would have allowed for some movement when the slabs reacted to temperature changes; as it was, the locking effect of the fish-tail hooks resulted in more stress to the cladding. Thus, it was not simply the design showing the use of fish-tail hooks which caused the problem: it was the use of cement grout together with the fish-tail hooks which contributed to the additional stress. Again, an examination of the plans was unlikely to have revealed this problem.

81. There was yet another factor. The stainless steel hooks which secured the granite slabs to the reinforced concrete structure were not wholly recessed into the slabs but intruded into the space between the slabs, thus prevented the slabs from moving within the expansion joints by the designed amount. There were no contemporaneous drawings produced at the trial showing such a design for the mountings: It is not clear from Rogers JA's judgment, when he referred to the "purchaser" inspecting the drawings, what precise drawings he had in mind. The fact that parts of the steel hooks intruded into the space between the slabs was, of course, not apparent: This was hidden by the mastic which sealed the joints.

CP 298

82. At trial, and in the Court of Appeal, much was made by counsel of this fact: If one examined CP298 carefully, one would have seen that a minimum of 13 mm width of compression joints per floor was recommended, to accommodate the irreversible shrinkage of a reinforced concrete frame. In fact, what the drawings provided for were 6 mm compression joints per floor, plus 20 mm compression joints at the 7th, 13th and 18th floor levels. Mr Thomas, counsel for Palmer & Turner, argued that this deviation would have been manifest: Without even looking at the drawings, an expert surveying the building after it was completed would have realized this was a "design fault". This argument was rejected by the Court of Appeal. Rightly so. CP298 constituted nothing more than guide-lines; it was agreed by the experts at the trial that CP298 did not apply to all cladding types and departures from its recommendations were permitted, provided performance equivalence could be demonstrated.

Why did the cladding fail?

83. In a report made by Dr Mathews and Dr Yates (of the British Research Establishment) for TW's solicitors in March 1997 these experts concluded as follows:

84. Dr Shillinglaw reached essentially the same conclusion. In his report he said:

85. Mr Kinnear did not disagree with these conclusions, but he thought there was an additional factor leading to the granite failing over the long term: What he called "the phenomenon of weariness or fatigue". This, he said, was "relatively new knowledge": It was "the same failure as occurred to the Comet airliner which never necessarily went beyond its static strength but failed because it reached a lesser figure sufficiently frequently to fatigue it. The same phenomenon exists in granite". This was due to the diurnal changes in temperature over a long period.

86. Mr Perry, called by Palmer & Turner to testify as an expert, went rather further than the other experts in discounting the design faults as the cause of the damage. He said in evidence:

87. The judge however rejected his evidence in this regard.

88. The evidence, as summarized above, was not referred to in Rogers JA's judgment and contradicts his surmise that a purchaser of the Bank building examining the position at the end of 1982 would have concluded that the cladding was going to fail.

89. As mentioned earlier, at the trial, there was scant reference to the drawings. Such plans relating to the cladding as might have been lodged by Palmer & Turner as Authorized Persons of the project with the Building Authority were never produced at trial. The only drawing produced was one dated 3 July 1981 showing 6 mm joints between the floors and the statement "mouvement horiz. joint 20 mm each 6 floors". On the evidence, this drawing, by itself, if seen by the hypothetical purchaser of the Bank building in 1982, would probably not have caused alarm. What eventually led to the failure of the cladding was not simply the lack of space between the slabs in the design; it was that coupled with the other factors: The nature of the material itself, the way it was fixed to the concrete structure and the timing in the fixing process.

90. As set out in Mr Kinnear's report of 18 March 1997 the reasons for the ultimate failure of the cladding were:

91. From this Mr Kinnear reached the following conclusion:

"Injury beyond what can be regarded as negligible"

92. In Cartledge v. Jopling at p.771, Lord Reid said that a cause of action "accrues as soon as a wrongful act has caused personal injury beyond what can be regarded as negligible ..." (emphasis added). Plainly, the legislature, in imposing a statutory time limit for commencing proceedings, cannot be thought to have required parties to embark upon the redress of wrong before any damage in a real and substantial sense has occurred. It cannot be the policy of the legislature to encourage speculative law-suits.

93. The trial judge in his judgment (p.22) referred to "the view of the experts" being that "physical damage to the cladding system started to occur within the first few years after 1982". As mentioned earlier Mr Kinnear's view was that the photographs taken by Mr Michael Tang in September 1989 provided evidence of damage "which would be expected at a relatively early age from consumption of the provision for compression movement. This would have caused natural defects in the stone and minor cracks induced in the stone during the cutting and drilling operations ... to begin to open." He elaborated upon this in court by saying that these observed defects (observed, that is, from the photographs, 75 "defects" in all were "consistent with damage having occurred as early as 1985/86". He also said that these "items of damage" were relatively few in number (a fact which, perhaps, is obvious since 75 defects on the facade of a large 23-storeyed building must be regarded as few). Mr Kinnear also said that, having regard to the various factors at play (as summarized earlier), "the point at which evidence of these actions in the granite normally [begins] to appear is ... as long as 10 years after construction".

94. Dr. Shillinglaw, looking at the 1989 photographs, thought that some of the spalling might have occurred as early as 1984/5: He so concluded from the dirt marks shown in the photographs which, he said, would have taken "at least four years to build up".

95. Dr. Shillinglaw also conducted a "full inspection" of the spalls along the lowest expansion joint in January 1996. He thought, by the extent of dirt built up in the spalls, that some of the damage "appeared to have occurred a long time ago": He suggested "between 1984 and 1986".

96. The trial judge, with reference to Dr. Shillinglaw's observations, said that there was "some evidence that marks on the surface of the granite panels could be seen in 1984 and 1985".

97. What is set out above is, in effect, the sum total of the evidence bearing upon the question as to when real and substantial damage to the cladding first occurred. The only safe thing to say about this evidence is that it is inconclusive as regards the question when the damage to the cladding first occurred. Rogers JA said it was more than 6 years before 1 July 1991. Leong JA agreed with him. Mayo JA made no finding. But, as has been mentioned earlier, the evidential basis for Rogers JA's finding was somewhat meagre. In my judgment the evidence showed no more than that the first damage occurred round about the time indicated in Rogers JA's judgment, and if the burden of proof fell on the plaintiff to show that it occurred after 1 July 1985, then the Bank fails on Pirelli principles. It is, perhaps, of some significance that after the limitation issue was raised in the Defence, the Bank did not assert a date for the first physical damage in its Reply.

Burden of proof

98. Section 4(1)(a) simply says that an action founded on tort shall not be brought after the expiration of 6 years. It is silent on the question as to who carries the burden of proof.

99. At first sight the argument that the defendant carries that burden is attractive: 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. The Bank relies for this proposition on the judgment of the Victorian Full Court in Pullen v. Gutteridge [1993] 1 VR 27. But, as I see it, this argument misses the essential point of the statutory scheme for the limitation of actions, which is to prevent stale claims from being brought.

100. A plaintiff commences an action for tort because he says he has suffered actionable harm. Whether he has suffered harm or not is normally within his own knowledge. Assume that he brings proceedings many years after the tortious acts giving rise to liability and the defendant says: This claim is stale; records have been lost, memory has faded; fair trial of this action is no longer possible. Would it not be right for the court then to say to the plaintiff: If the damage giving rise to your pecuniary loss has occurred quite recently, say, less than 6 years before you issued your writ, you prove it. The matter is well put in McGee's Limitation Periods (3rd ed.) p.349:

101. This approach is supported by Lord Pearce's judgment in Cartledge v. Jopling at 784 and represents, in my judgment, the true principle. It follows that the Bank's appeal in this case must be dismissed unless it can be shown that Pirelli is no longer good law, and we have to look for some other basis for liability in latent damage cases.

Does Pirelli remain good law?

102. The key to a proper understanding of Pirelli is the passage in Lord Fraser's judgment at 16-F where he adverted to an important fact concerning defects in the foundations of buildings: He said:

103. Hence, he said, the plaintiff's cause of action did not accrue until damage occurred: This would commonly consist of cracks coming into existence as a result of the defect.

104. This approach accords well with common-sense. It is not the policy of the law to encourage speculative litigation: If a defect in design or in the specifications causes no physical damage, the harm suffered by the plaintiff would, at the most, be minimal.

105. In Pirelli the argument based on Hedley Byrne was expressly rejected. At p.18-G Lord Fraser said:

Lord Keith's dictum: A new trend?

106. As mentioned earlier, the argument for a re-classification of latent damage cases depends upon the following passage in Lord Keith's speech in Murphy (at p.466 D-H):

107. This, counsel suggests, in effect began a new trend where latent damage cases were re-classified as cases of pure economic loss on Hedley Byrne principles, and physical damage is relevant only as evidence of economic loss which has been caused. It rejects, by inference, the approach of the High Court of Australia in Bryan v. Maloney and in particular Brennan J's statement that defects in a building are physical defects and the cost of their rectification is consequential on their existence.

108. It is suggested by counsel that the authority of Pirelli has been further weakened by Invercargill where the Privy Council held that in a latent damage case the loss in respect of which the plaintiff complains is, upon proper analysis, loss to his pocket: The plaintiff is not suing for physical damage to the building: see Lord Lloyd of Berwick's judgment at p.648-C. At p.649-B Lord Lloyd concluded by saying that whilst their Lordships regretted that there should be any divergence between English and New Zealand law on a point of fundamental principle, Pirelli could not be taken as good law in New Zealand - "Whether [it] should be regarded as good law in England was not for their Lordships to say."

109. Mr Mauleverer QC, counsel for the Bank, submits that we in this Court are not tied to Pirelli: The common law as referred to in Article 8 of the Basic Law ("The laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and customary law shall be maintained ....") is not confined to the common law of England; Article 84 specifically authorises us to "refer to precedents of other common law jurisdictions"; thus we are free to declare that in a latent damage case (or at least one affecting buildings) where the plaintiff's claim is for economic loss, the cause of action accrues when the physical damage becomes apparent to a reasonable claimant; powerful support, Mr Mauleverer argues, is to be found for this proposition in Invercargill where the Privy Council (following Murphy at p.467-468) adopted a passage in Deane J's judgment in Sutherland Shire Council v. Heyman (1985) 157 CLR 424 at 503-505. There the High Court of Australia was dealing with a case of damage to a house from inadequate footings; at p.503 Deane J said that the plaintiffs' claim as crystallised was not in respect of damage to the fabric of the house or to other property caused by collapse or subsidence of the house, it was for "the loss ... represented by the actual inadequacy of the foundations, that is to say ... for the cost of remedying a structural defect in their property which already existed at the time when they acquired it ...". Deane J then looked at two possibilities for determining when the cause of action accrued: (i) when the plaintiffs acquired the house, paying a higher price in ignorance of the inadequacy of the foundations, thus in effect suffering a loss or detriment at that time or (ii) when the inadequacy of the foundations were first known or manifest. Deane J considered the latter appropriate: only then did economic loss in the form of actual diminution of the market value of the house occur. In adopting this approach Lord Lloyd of Berwick in Invercargill said (at p.648-F):

110. Mr Mauleverer submits that the same approach should be adopted by this Court, thus in effect assigning Pirelli to the scrap heap. He says that the preponderance of common law authority is against the continued validity of the Pirelli approach: Not only has the "discoverability" test been part of New Zealand law since Mount Albert Borough Council v. Johnson [1979] 2 NZLR 234, long before Invercargill affirmed it, Pirelli has not been followed in Australia either: see Shire of Sutherland Council v. Heyman (1985) 157 CLR 424; nor in Canada: see City of Kamloops v. Nielsen [1984] 10 DLR (4th) 641.

The importance of the statutory frame-work

111. These are powerful submissions, but are they sound in the context of Hong Kong's statutory scheme for the limitation of actions?

112. As mentioned earlier in this judgment, time limits for the commencement of actions are regulated by statute and, at the end of the day, the court's function is simply to give effect to the true intent of the legislation. The existing statutory scheme for limiting actions for latent damage not involving personal injuries, as contained in sections 31 and 32 of the Ordinance, is clearly predicated on the fact that a cause of action might accrue before knowledge of the harm done comes to the notice of the claimant: Otherwise s.31(4)(a) and (b) would have no meaning. And we know as a matter of historical fact that the origin of those provisions is Pirelli.

Governing principles

113. All negligence claims in tort (excluding personal injuries) are governed by the same principles: see Bingham LJ in D.W. Moore & Co. Ltd v. Ferrier at 280-H. Two main rules govern the application of s.4(1) of the Limitation Ordinance: (i) time runs against the claimant from the date when his cause of action accrues; (ii) his cause of action accrues when he suffers damage (in a real and substantial sense, more than what might be regarded as negligible) arising from the defendant's negligence. This applies right across the board.

114. As I see it, the Pirelli principle is engrained in our law and we must look long and hard before we can say that it was wrongly decided. Accepting that the Bank's claim here is for economic loss and not for compensation for physical damage, there are, in pure theory, three contending dates for limitation purposes:

115. As to (i) above, this requires a re-classification of latent damage cases as claims for negligent mis-statement along Hedley Byrne principles, as broadened in Henderson v. Merrett Syndicates Ltd. But the application of those principles alone does not provide the whole answer to the question "when does the cause of action accrue?". It is not axiomatic that it accrues the moment the plaintiff relies upon the negligent advice. Where it can be shown upon the evidence that no quantifiable damage had occurred at the outset, it cannot accrue at that time: Even though in the negligent solicitors and valuers type of case this generally happens. Upon the (unusual) facts of this case, it did not happen here.

116. Leaving paragraph (ii) aside for the moment I turn to (iii). This in effect embodies the English position as laid down in Sparham-Souter, until it was expressly over-ruled in Pirelli. The basis on which Sparham-Souter was over-ruled is significant. In Sparham-Souter, as mentioned earlier, Geoffrey Lane LJ had said there was no proper analogy between the situation there (a house with inadequate foundations) and Cartledge v. E. Jopling, (the pneumoconiosis case) but the House of Lords expressly disagreed with this proposition - asserting the principle that in negligence claims generally the question when the cause of action accrues is answered by the same test. The House of Lords determined in Pirelli that, in cases of buildings with latent defect, the principle which applied for the purposes of s.2(1) of the Limitation Act 1939, was the same as for all other negligence claim cases: including, for instance, claims against solicitors and valuers. It was pursuant to this that the "discoverability" test was introduced by statute, as now embodied in our s.31.

117. Mr Mauleverer submits that the mere fact that the legislature, in enacting sections 31 and 32, proceeded on the assumption that Pirelli was the governing law does not preclude this Court from deciding differently. He cites Birmingham Corporation v. West Midland Baptist (Trust) Association [1970] AC 874 as authority for this proposition, and in particular the passage in Lord Reid's judgment at p.898-F:

118. Accepting this to be correct, the question still remains: What violence is done to governing principles by abandoning Pirelli? As the legislature has, in 1991, already introduced the "discoverability" test for latent damage cases by enacting s.31, what ends of abstract justice are to be served by declaring the common law to be different from Pirelli?

119. This leads me then to Invercargill, the only possible rival for Pirelli.

Invercargill

120. In Invercargill the majority of the New Zealand Court of Appeal (McKay J dissenting) upheld the "discoverability" test for ascertaining when the cause of action accrued in latent building damage cases, declining to follow the House of Lords in Pirelli. This was affirmed by the Privy Council.

121. In New Zealand, the law had at a relatively early stage developed along different lines from English law (and by analogy Hong Kong law). In Mount Albert Borough Council v. Johnson [1979] 2 NZLR 234 the New Zealand Court of Appeal held that in a latent defect case the cause of action under the Limitation Act 1950 only arose when the defect became "apparent or manifest". Ten years later, in Askin v. Knox [1989] 1 NZLR 248, the Court of Appeal had the opportunity of reviewing the position, in the light of Pirelli which had been decided a few years before. The Court said that the guidance given in Mount Albert Borough Council should be followed. This was not necessary to the decision as the plaintiff had failed to prove negligence on the facts, but the Court of Appeal went out of its way to endorse Mount Albert Borough Council and at the same time expressed the view that Parliament should consider introducing a "longstop" limitation period such as the absolute limit of 15 years in the English Latent Damage Act 1986, so that defendants should not be faced with inordinately stale claims. The New Zealand Parliament acted on this suggestion and passed the Building Act 1991, introducing a "longstop" limitation period similar to the Hong Kong s.32, but there was nothing equivalent to s.31: It was deemed unnecessary because the New Zealand Court of Appeal in Askin v. Knox had not followed Pirelli: Plainly, by passing the Building Act 1991, protecting defendants from stale claims by the "longstop", the New Zealand Parliament must have endorsed the "discoverability" test which served the interests of plaintiffs in cases where latent defects were not reasonably discoverable. Thus, the question facing the Privy Council in 1995, when Invercargill was heard, was this: For the purposes of New Zealand law, must the clock be wound back to 1982, as if Pirelli principles governed in New Zealand, or should the reality be accepted that the law in New Zealand had for nearly two decades developed differently, and in this regard there would be no homogeneity in the common law?

122. No such problem faces us here.

The way forward

123. The statutory scheme for the limitation of actions strikes a balance between the competing interests of the parties. Section 4(1)(a) of the Limitation Ordinance does not require plaintiffs to put forward tortious claims based upon mere surmise. Actual damage is a natural ingredient of any claim in tort. It is, as Brennan J said in Bryan v. Maloney at 391, artificial to classify defects in a building as pure economic loss.

124. The harm done by the defendants' negligence is not purely economic: It is physical damage to the building as well. The case for "re-classifying" such damage has not, in my judgment, been made out.

125. Cases where actual damage can be shown to have occurred more than 6 years before the plaintiff discovers it will be rare. Take this very case: Upon the evidence, the physical damage found by the then managers of the Bank building in September 1989 ought, in the view of some of the experts, to have led to further investigation. If experts had been called in then, it is at least possible that the cracking and spalling of the granite then observed might have been traced to defects in the design and in the manner of construction. Thus, upon classic Pirelli lines the Bank might well have commenced proceedings within time even without the help of s.31, if Hong Kong Land had alerted the Bank to their findings and they had acted promptly in seeking expert advice.

126. Where the design has led to the construction of a building which was bound to cause the owner to incur additional expense (be it for remedial work or reinstatement) it would be a rare case if a defect so profound does not give rise to manifest physical damage within 6 years.

127. As I see it, we have in Hong Kong a legal regime for dealing with latent defect claims which is well grounded in established principles and which is entirely reconcilable with other negligence claims in the tortious field. The submission made by Mr Mauleverer that the "trend" of legal development, at least since Murphy, is to adopt the "discoverability" test is, in my judgment, far too superficial. This is not reconcilable with our statutory scheme for the limitation of actions in tort. It is no answer to say that s.31 does not, as such, endorse Pirelli but simply mitigates its effect. Whilst it is true that the concept of a cause of action accruing at a certain date, as embodied in s.4(1), is derived from judge-made law, and therefore can be modified in this Court to suit changing circumstances, we should be slow to shift with what might be perceived as the moving tide.

128. Earlier, I had referred to Lord Reid's judgment in Cartledge v. Jopling: in particular his reasons for concluding that the statutory scheme prevented the Court from holding that the cause of action accrued when the damage was discovered: Lord Reid had referred to the incidents of fraud and mistake postponing the limitation period: the Hong Kong equivalent is section 26 of the Limitation Ordinance. This was said by the New Zealand Court of Appeal in Invercargill to be a non sequitur (see [1994] 3 NZLR 513 at 532 line 27): This was advanced as an additional reason for not following Pirelli. I respectfully question whether this criticism of Lord Reid's judgment in Cartledge v. Jopling is justified. The House of Lords was there seeking to give meaning to the words "the date on which the cause of action accrued", and all that Lord Reid was saying was that those words could not be given a different meaning in the case of latent damage: particularly having regard to the fact that where fraud or concealment were involved, that was already covered by the statute. Loop-holes were for the legislature to fill: It was not proper for the courts to distort the plain meaning of well-worn words in order to strain for a particular result in an individual case. But all that is past history, for the loop-hole has been filled: Since 1991 we have in the statute-book sections 31 and 32.

Conclusions regarding case against Palmer & Turner

129. My conclusions regarding the case against Palmer & Turner partners are these:

Bank's claim against TW in tort

130. The Bank's writ against TW was issued on 20 June 1994. What I have said above applies equally in relation to the Bank's claim in tort against TW. The action was already time-barred when the 1991 amendments came into effect. For the sake of completeness, I would deal briefly with the point on which the judge found in favour of TW (affirmed by the Court of Appeal) that the design of the cladding was done by Mr Ragaglini as an independent contractor and TW was not in law liable for his failure.

Whether TW's duty of care to the Bank was delegable

131. TW was a nominated subcontractor for the cladding work and entered into an agreement with the Bank on 18 May 1981 under which TW warranted to exercise all reasonable skill and care in the design of the cladding. The judge's finding was as follows:

132. There is no challenge to this finding.

133. The Bank says that this gave rise simultaneously to a duty of care, actionable in tort, to design the fixing system with skill and care: seeHenderson v. Merritt Syndicates Ltd. The judge also found in favour of the Bank on this point.

134. What, then, is the consequence in law of these findings?

135. The Bank was not looking to Mr Ragaglini for the exercise of skill and care in the design of the cladding, nor was the Bank seeking to make TW vicariously liable for Mr Ragaglini's default. The Bank's case was simply this: TW was under a duty of care to the Bank and it could not get rid of that responsibility by delegating the performance of it to someone else; TW was of course at liberty to employ Mr Ragaglini on whatever terms they might decide between themselves but this could not affect TW's duty owed to the Bank.

136. In my judgment this is plainly correct. It is founded upon well established principles: See for example Lord Blackburn in Hughes v. Percival (1883) 8 App. Cas. 443 at 446.

137. As Lord Slynn of Hadley said in Wong Mee Wan v. Kwan Kin Travel Services Ltd [1995] 3 HKC 505 at 510:

138. This was said with reference to contractual obligations. The position is no different in regard to tortious obligations. When a person is under a duty to use care he cannot get rid of his responsibility by delegating the performance of it to someone else, no matter whether the delegation be to a servant under a contract of service or to an independent contractor under a contract for services: See observation of Denning LJ to this effect in Cassidy v. Ministry of Health [1951] 2 KB 343 at 363.

139. In the Court of Appeal Rogers JA upheld the judge's finding and concluded that no tortious liability on TW's part had arisen. Leong JA agreed with Rogers JA's conclusion. The result was that the Bank failed in its appeal against TW. In my judgment, this ground cannot be sustained. But, for reasons set out earlier, the Bank's action in tort against TW was time-barred when the writ against TW was issued in June 1994.

Claim against TW on basis of continuing guarantee

140. I have had the advantage of reading in draft Mr Justice Ching PJ's judgment on this aspect of the case. I agree with it.

Conclusion

141. In my judgment the Bank's appeal against both Palmer & Turner and TW must be dismissed, with costs.

Mr Justice Ching PJ:

142. Some years ago The Bank of East Asia Limited redeveloped its head office into a building of 23 stories. It has what is known as a dry hung granite cladding. Large panels of it were mounted on anchors which were in turn attached to the building. The sub-contract for the design of the system and for the execution of the work was let to Tsien Wui Marble Factory Limited. Payments were to be made by stages upon certification by the architects. Tsien Wui submitted their first invoice in August 1981 which appears to have been paid sometime before 21 November 1981. The architects and structural engineers for the redevelopment as a whole were Palmer & Turner who passed the plans produced by Tsien Wui. The cladding was completed in July 1982. The occupation permit was issued in November 1982 and the building as a whole was completed in March 1983 but the completion of the building and the issue of the occupation permit does not appear to have any relevance to the date of completion of the cladding. The cladding failed and has had to be replaced at a cost in excess of $38,000,000. The Bank issued a writ against Tsien Wui on 20 June 1994 alleging breach of contract and negligence. At trial it was accepted that, except for a claim under an alleged guarantee, the claim in contract was time barred. On 25 May 1996 the Bank issued a writ against Palmer & Turner also alleging breach of contract and negligence but again at trial it was accepted that the claim in contract was time barred. The actions were consolidated and were heard by Findlay J. He found in favour of Tsien Wui. He found that Tsien Wui had not given any guarantee and that it was not liable in negligence because it had employed an independent contractor, a Mr Ragaglini, to produce the design. Palmer & Turner admitted negligence but argued that that cause of action was time barred. He found against them. The Court of Appeal upheld the judgment in favour of Tsien Wui and reversed the judgment against Palmer & Turner holding that the cause of action in the latter case was time barred. The matter thus comes before this Court.

143. The claim on the guarantee against Tsien Wui was based on clause 2.15 appearing in the tender documents and incorporated into the sub-contract. It provided, in part, that,

It is common ground that Tsien Wui gave no separate guarantee. The Bank's argument was in effect that the clause itself was a guarantee. It is sufficient to say that it was not and that it clearly envisaged something further. No guarantee was given and that is the end of the matter.

144. Tsien Wui is a specialist in marble works and accepts that by the terms of the sub-contract it was responsible for the design of the system and that the system was in fact negligently designed. It argued successfully in the Courts below that on the facts it should nevertheless not be liable. The evidence was that to the knowledge of the Bank Tsien Wui lacked the necessary expertise in dry hung cladding and that with the knowledge and approval of the Bank it had employed the services of a specialist, Mr Ragaglini. I regret that I must disagree with the Courts below as to the consequences of this evidence. Tsien Wui was a nominated sub-contractor and remained liable for the design unless they were released from that responsibility. The evidence does not go that far. It has not been argued that Tsien Wui did not otherwise owe the relevant duty of care to the Bank. If they could not produce a proper design themselves it was their duty to procure one. They knew that reliance would be placed upon it. The only question remaining to be decided is whether or not the claim in negligence was time barred.

145. The claim in negligence against Palmer & Turner was that they had negligently passed the plans for the cladding. Various admissions were made by them at trial. They were,

Admission (ii) was plainly an admission of a duty not to cause economic loss. That is something that I would have found even without the admission. Tsien Wui made no such admission but the facts briefly referred to earlier show the same duty on their part. Admission (vi) is that the Bank suffered the damage alleged, the allegation being physical damage developing in the cladding and economic loss. Finally, admissions (v) and (vii) read together mean that Palmer & Turner knew that the admitted physical damage would require remedial works for which they were liable subject to the defences pleaded. In my view the only issue in relation to each of the defendants is whether or not the actions were time barred.

146. The question in issue in relation to each of the defendants is therefore the proper interpretation of section 4(1)(a) of the Limitation Ordinance, Cap. 347, in precisely the same words as section 2(1)(a) of the Limitation Act, 1939, which simply provides that,

Nowhere in the Ordinance is there any direct provision which determines the date when the cause of action in tort accrues. For that, resort must be had to the common law. In contract it accrues upon breach whether or not the breach is known to the plaintiff and whether or not the plaintiff has suffered damage. In the tort of negligence it accrues when relevant damage, more than negligible, has occurred. In the usual case, such as in running down, some physical damage is obviously contemporaneous with the tortious act. Less easy is a case where an article is damaged by or deteriorates through a latent defect in itself or where the latent defect itself is alleged to be the damage.

147. No doubt mindful of these difficulties Mr Michael Thomas SC who appeared for Palmer & Turner put forward an argument that in the present case the defects in the design were patent rather than latent in that they would have been obvious from an examination of the plans or of the actual structure. It is unnecessary to deal with this point at any great length. The evidence was far from clear that that was the position, no doubt because the point was neither pleaded nor argued at first instance. In these circumstances the point cannot be open in this Court. See The Tasmania (1890) 15 App. Cas. 223 at 225 and Hoecheong Products Ltd v. Cargill Ltd [1995] 1 WLR 404 at 408G-409F. We must proceed on the basis that any defects in the plans or in the structure were latent.

148. In the Court of First Instance the Judge held that

The Court of Appeal held that the burden is in fact on the plaintiff and I agree. A plaintiff need not plead in the Statement of Claim that the action has been brought within time. That would be to jump the stile before coming to it. Once the matter has been raised in the Defence, however, the burden is on the plaintiff although the evidential burden may change from time to time in the course of the trial. See Cartledge v. E. Jopling & Sons Ltd [1963] AC 758 at 784, London Congregational Union v. Harriss [1988] 1 AER 15 and most recently Crocker v. British Coal Corporation [1995] 29 BMLR 159. In the present case the point was taken in the Defences but the Reply contented itself with a denial without any particulars as to when the cause of action was said to have accrued. It may be that in the Courts below this omission caused or contributed to some lack of focus on the damage necessary to perfect the cause of action in tort and the date upon which such damage occurred.

149. There have been Limitation Acts in England for hundreds of years. Hong Kong had its own Ordinance, the Limitation Ordinance, Cap. 347, for the first time in 1965 modelled upon the Limitation Act, 1939. Paragraph 805 of volume 28 of Halsbury's Laws of England (4th ed.) states that,

There may be other justifications. So, for instance, the Twenty-Fourth Report (Latent Damage) of the Law Reform Committee chaired by Lord Scarman at paragraph 2.6 refers to comments received on the law as it then was and states,

Primarily, the legislature both in England and in Hong Kong considered that the limitation for actions in both tort and contract was properly set at six years from the date of accrual of the action. Of that period, Bingham LJ said in D.W. Moore and Co. Ltd v. Ferrier [1988] 1 WLR 267 at 279,

He went on to mention difficulties where the plaintiff in a tortious claim does not know and cannot discover the fact of the damage until after the limitation period has passed.

150. Inevitably, statutes of limitation represent a compromise. On the one hand, defendants are to be protected from stale claims when documents or witnesses are no longer available or memories, from the passing of time, supervening illness or other reasons, have faded or failed. The present case is an example of this. The plans for the cladding should have been lodged with the Buildings Ordinance Office but no trace of them has been found there. It may have been expected that Palmer & Turner or Tsien Wui would have kept a copy but apparently they have not. The only document which might conceivably be called a plan was the rough sketch on a single piece of paper apparently drawn up by Mr Ragaglini during a meeting. In these circumstances that rough sketch was the only plan produced and the experts who gave evidence and the Court were deprived of the opportunity of examining the full set of the actual documents. Few memoranda or minutes of meetings, if they ever existed, appear to have been kept and those that were produced contained nothing useful on the question of limitation. It takes only a quick reading of the transcript of the evidence to appreciate that memories have faded. On the other hand, the compromise means that there will be hard cases where a plaintiff sets out an apparently unanswerable claim only to find that his action has been time barred. So, for instance, section 5 of the Ordinance, which has been in the Ordinance since its inception and which finds its equivalent in section 3(1) of the Limitation Act, provides that in cases of successive conversions time begins to run from the accrual of the cause of action in respect of the first conversion. In R.B. Policies at Lloyd's v. Butler [1950] 1 KB 76 a motor car was stolen by an unidentified thief and was then sold to an innocent purchaser. The plaintiff's claim against the purchaser would have seemed to be irresistible but more than six years had elapsed since the theft. The fact that the plaintiff could not have taken proceedings against an unknown thief did not assist him. The action was held to be time barred. In Cartledge v. Jopling the plaintiffs had contracted pneumoconiosis. It was held that the cause of action accrued when more than negligible damage had been suffered even though the plaintiffs did not know and could not have known of it. However hard these cases may be, it is not for the Courts effectively to allow extensions when the legislature has not done so. To borrow the words of Sir Thomas Bingham MR in Spencer-Ward v. Humberts (unreported, English Court of Appeal, 6 July 1994) said in another connection,

To this I would add that it would be unfortunate if the courts were to ignore the legislation in an attempt to effect an undefined solution of fairness. It is the task of the Courts to construe provisions bearing in mind the purposes of the legislation and the provisions of the Ordinance as a whole. There appears, however, to have been a current in the Courts in England and other Commonwealth jurisdictions to ameliorate the position of plaintiffs who could not have known of or discovered the damage they had suffered before the period of limitation expired.

151. Neither the Courts nor the legislatures in England and in Hong Kong have been unaware of the difficulties in a case where there has been damage which is neither discovered nor discoverable. As long ago as 1886 the House of Lords decided the appeal in The Darley Main Colliery Company v. Mitchell [1886] 11 App. Cas. 127. There the mining operations of the lessees of coal had caused subsidence under the plaintiff's land. Compensation was paid and the lessees ceased their operations. Years later further works by others on land adjoining that of the lessees caused a further subsidence which would not have occurred but for the previous removal of support. It was held that the second subsidence created a fresh cause of action so that the action was within time. In the course of his speech Lord Halsbury said at page 132,

The logic in this passage appears to be impeccable.

152. Darley was a decision based on the fact that a further cause of action had arisen so that the writ was within time. 77 years later, the House of Lords decided Cartledge v. Jopling. At page 781 of the report of that decision Lord Pearce referred to the words of Lord Halsbury which I have cited. He continued,

Each of their Lordships were in agreement that the cause of action accrued when more than minimal damage was done even though the plaintiffs did not know and could not reasonably have known of it. Each of them came to this conclusion with clearly expressed reluctance. At the time, the only impediment in the Limitation Act which compelled them to hold that discovery or discoverability was irrelevant was section 26 of the Act which is in the same terms as section 26 of the Ordinance. That section provides that where (1) the action is based upon the fraud of the defendant or (2) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant or (3) the action is for relief from the consequences of a mistake, time does not begin to run until the plaintiff has discovered or could with reasonable diligence have discovered the fraud, concealment or mistake as the case may be. The section proceeds upon the assumption that a cause of action has in fact accrued even though the plaintiff is ignorant of it and could not reasonably have discovered the necessary facts. It does not postpone the date of accrual of the cause of action. In appropriate circumstances it simply postpones the date from which time is to run.

153. At page 772 of the report of Cartledge v. Jopling Lord Reid said that if the matter had been governed by Common Law he would have held that a cause of action ought not be held to accrue until either the injured person had discovered it or it would have been possible for him to have discovered it if he had taken such steps as were reasonable in the circumstances. He then read the two English sections, section 2(1)(a) and section 26, together and said,

Lord Evershed at page 773 said,

The reference to the postponement of the date of accrual of the cause of action rather than to the postponement of the date for the commencement of the running of time is clearly a slip.

154. Quite apart from authority it is clear that the discovery or discoverability of damage cannot in itself amount to damage. To adopt the words of Lord Halsbury in Darley set out above, if damage is suffered then there is damage to the extent that it has been suffered. The discovery of damage is self-evidently not the occurrence of damage. So, in Cartledge v. Jopling Lord Pearce at page 778 said,

Once relevant damage has been sustained, one of the necessary elements of an action in tort exists. The discovery, or discoverability, of it does not cause or amount to damage. It does neither more nor less than to provide the evidence for the plaintiff to prove his damage or the extent of it. Absent legislation, ignorance of the damage or the inability to discover it cannot assist any more than ignorance of or the inability to discover the identity of a tortfeasor can assist. It was aptly put by Mr Recorder Moxon-Browne QC in Western Challenge Housing Ltd v. Percy Thomas Partnership and Others [1995] Construction Industry Law Letters 1018, that

155. As a result of the decision in Cartledge v. Jopling the legislation in England was amended, the equivalent in Hong Kong being section 27 of the Ordinance. That section applies to any action for negligence, nuisance or breach of duty where the damages claimed by the plaintiff consist of or include damages for personal injury. By subsection (2), where the section applies, section 4 is not to apply. Subsection (4) provides that, except in the case of death, the limitation period for such actions is to be three years from

Provisions are then made to ascertain the date of knowledge. The whole section is made subject to section 30 which gives the Court a discretion to extend the time in certain circumstances. Section 32, which provides a long-stop of 15 years, applies to all actions in negligence except for those within section 27. The section and section 30 apply only to cases of personal injury. These sections therefore have no application to cases of pure economic loss or to damage caused to buildings. Section 27 did not purport to overturn the ratio decidendi of Cartledge v. Jopling. Subsection (2) removes the application of section 4(a) but section 27(4)(a) provides that time begins to run from the date of the accrual of the cause of action while cutting down the period from six to three years. Cartledge v. Jopling was therefore not reversed by the section insofar as the date of accrual of the action was concerned. Subsection (4)(b) then provides, in effect, an extension of a further three years from the date of the plaintiff's knowledge if that date is later than the date of accrual of the cause of action. In the result, the cause of action still accrues notwithstanding that the damage was neither discoverable nor discovered but the position is ameliorated in those circumstances if the plaintiff can bring himself within subsection 4(b).

156. In 1982, the House of Lords decided the case of Pirelli General Cable Works Ltd v. Oscar Faber & Partners (A Firm) [1983] 2 AC 1. The defendants there had advised upon and designed a new addition to factory premises including a chimney. They were not the builders. On their advice a new material was used to line the chimney and it proved unsuitable. The chimney was completed in June or July 1967. It was found that damage in the form of cracks must have occurred not later than April 1970 but they were not discovered until November 1977. The plaintiff issued its writ in October 1978. The plaintiff's argument was that time did not begin to run until the damage was discoverable. The House of Lords held that the damage occurred when the cracks came into existence and the writ was out of time. For the purposes of the present point it is enough to say that their Lordships applied the same principles as enunciated in Cartledge v. Jopling. At page 14, Lord Fraser said,

This resulted in further legislation in England which finds its equivalent in section 31 of the Ordinance.

157. That section bears the heading,

Immediately it is seen that the provisions are 'special' and so differentiated from causes of action subject to section 4. Then, as in the case of sections 26 and 27, it does not purport to alter or deal with the date of accrual of the cause of action. It proceeds on the basis that the cause of action has in fact accrued but provides for a possible extension of time where facts relevant to the cause of action are not known at that date. Subsection (2) provides that the period of limitation prescribed by section 4(1) in respect of actions founded in tort is not to apply to an action to which section 31 applies. Section 31(1) provides that the section applies to any action for damages for negligence other than one to which section 27 applies,

Subsections (5), (6) and (7) deal with 'the knowledge required for bringing an action for damages in respect of the relevant damage' and subsections (3) and (4) provide that no action to which section 31 applies shall be brought after a period of either

Again, section 31 did not reverse the decision in Pirelli so far as the date of the accrual of the cause of action was concerned. Section 38A(2) contains transitional provisions which, so far as is relevant, provide that nothing in section 31 is to affect any action commenced before 1 July 1991 (subsection (2)(a)), or to enable any action which was barred by the Ordinance before that date to be brought (subsection (2)(b)). Otherwise section 31 is to have effect in relation to causes of action accruing both on or after that date. Section 31 therefore has no application in the present case if the Bank's cause of action was time barred before 1 July 1991, but its existence and the existence of sections 26 and 27 and their provisions must clearly be taken into account in construing section 4(1)(a) just as the existence and provisions of section 26 had to be taken into account by the House of Lords in Cartledge v. Jopling and the existence and provisions of sections 26 and 27 had to be taken into account in Pirelli.

158. It was urged upon us by the Bank that if Parliament legislates upon a mistaken view of the law it is open to the courts to declare that view erroneous. It relies upon Birmingham Corporation v. West Midland Baptist (Trust) Association Inc. [1970] AC 874. I derive no assistance from that decision. It was a case of compulsory purchase and the question was the relevant date for the assessment of compensation under rules (2) and (5) of section 2 of the Acquisition of Land (Assessment of Compensation) Act, 1919. A notice to treat was deemed to have been served on 14 August 1947. For many years it had been accepted that the relevant date was the date of such a notice although this was never specified or otherwise indicated by the Act. I need not go further into the details of the case other than to say that it was not until April of 1961 that the new building could have commenced, by which time building costs had risen more than two-fold. The Association insisted that that was the relevant date at which compensation was to be assessed. The Corporation insisted on the date of the notice to treat and called in aid subsequent Acts which clearly proceeded upon that basis by providing for a period after the date of the notice to treat as being the relevant period for assessment. In relation to those subsequent Acts, Lord Reid said at page 898,

I am unable to see that the provisions of the Ordinance already mentioned fall within these words.

159. I am unable to see exactly what mistake the legislatures of Hong Kong and of England are said to have made. Presumably it must be in the interpretation of section 4(1)(a), section 2(1)(a) in England, when they legislated section 31 and its equivalent in England. It must follow that it must also be said that the legislatures were mistaken in the same way when they amended the legislation by enacting section 27 and when they originally enacted section 26. It must also follow that the House of Lords was wrong in their interpretation of the English section 2(1)(a) in both Cartledge v. Jopling and Pirelli. I do not know how this can be argued. Whatever views may be held on the correctness of these decisions, when the House of Lords decided these two cases they laid down the law in England. In the passage cited above from Lord Fraser's speech in Pirelli he says that in passing section 27 Parliament deliberately left the law unchanged so far as actions for damages other than for personal injuries was concerned. Parliament made no mistake in that respect and legislated, as we have seen, to ameliorate the position while leaving untouched any question of the date of accrual of a cause of action in tort. In Trimble v. Hill [1879] 5 App. Cas. 342 the Privy Council held that upon the interpretation of statutes in equivalent terms in any Colony and in England the Colonial Courts should govern themselves by the decision of the English Court of Appeal unless and until that decision was reversed by the House of Lords. More scope for disagreement seems to have existed in questions of interpretation of the common law or rules of practice but even then Viscount Dunedin in the advice of the Privy Council in Robins v. National Trust Co. Ltd [1927] AC 515 said,

In De Lasala v. De Lasala [1979] HKLR 214 the appeal was to the Privy Council from Hong Kong on a question of the interpretation of an Ordinance relating to matrimonial finance. With an exception irrelevant to the appeal the wording of the sections in that Ordinance was identical to that of the sections of the Statute in England. A short while before the hearing the House of Lords had decided precisely the same point in Minton v. Minton [1979] 2 WLR 31. In giving the advice of the Board, Lord Diplock referred to the common membership between the Board and the House of Lords and said that the Board would be unlikely to diverge from a decision in its alternate capacity. He referred to Trimble v. Hill, Robins and others and then said at page 220,

This must be right. It cannot be right that the binding nature or the correctness of a decision so far as Hong Kong as a Colony was concerned should depend upon the accident of whether the appeal was contested in the House of Lords or in the Privy Council when there were no local circumstances which required that a decision of the House of Lords must be disapplied here.

160. Just as Parliament made no mistake in considering that the House of Lords had laid down the law in Cartledge v. Jopling and in Pirelli so the legislature in Hong Kong made no mistake. No fault can be found in the reasoning of the decision in Cartledge v. Jopling or, on at least this point, in the reasoning of the judgment in Pirelli. Neither the legislature in England nor the legislature in Hong Kong could have made any mistake as to the interpretation of section 4(1)(a) by the House of Lords in either of these decisions. Nor is it possible, as it was in Birmingham Corporation, to give a restrictive meaning to sections 26, 27 and 31. In the circumstances of that case the subsequent legislation contained no impediment to the true state of the law as found by the House of Lords. In the present case, if section 4(1)(a) with regard to torts includes any question of discovery or discoverability sections 27 and 31 would be superfluous. The sections exist and must be taken into account, upon which it is impossible to hold that section 4(1)(a) can be interpreted to mean that a cause of action in the tort of negligence arises only when damage is discovered or is reasonably discoverable.

161. We were also urged by the Bank to follow the decision of the Privy Council in an appeal from New Zealand in Invercargill City Council v. Hamlin [1996] AC 624. There the Court of First Instance in New Zealand had held that the building inspector was in breach of his duty of care and that the loss to the plaintiff occurred only when the market value of the house had been depreciated by reason of defects in the foundations having been discovered. Having regard to what I have already said, I cannot see that it is open to this Court to adopt that approach however desirable it may seem to be. In addition, it was quite clear that the common law in New Zealand had departed from developments in England for 20 years. There has been no equivalent departure in Hong Kong. In New Zealand there was not at the time the equivalent of our section 31. In delivering its decision the Privy Council made it clear that they were dealing only with the law in New Zealand in these circumstances and concluded with the words,

It is not for this Court to choose between conflicting decisions from different jurisdictions, especially not from one of those jurisdictions where the circumstances differ from those in Hong Kong and more especially when the legislation in Hong Kong precludes such an interpretation. Nor is it for this Court to impose what it considers to be the best solution or a solution better than that laid down by the House of Lords, at least when that solution runs contrary to logic and to other provisions in the relevant Ordinance.

162. As has already been seen, the decision in Invercargill was that the loss to the plaintiff occurred when the market value of the building was depreciated by the discovery of the defect in the foundations. It was therefore not a decision to the effect that the loss occurred when the damage occurred. That would have been to follow the decision in Pirelli. Rather than do that, as the headnote to the report shows, Pirelli was not followed. At page 648, Lord Lloyd said,

I would not be so bold as to say that this is not the law in New Zealand. Having regard to the fact that the decision was one in the Privy Council on appeal from that jurisdiction, it clearly is. I do say that it is not and cannot be the law in either Hong Kong or England for reasons I have already given. It is as contrary to the logic of and the decision in Cartledge v. Jopling as it is contrary to the existence of sections 26, 27 and 31. Nor can I readily accept the concept that economic loss is suffered in relation to a building only when the market value is affected.

163. The proposition that economic loss in relation to a building is suffered only when its market value is depreciated is one which to my mind involves insuperable difficulties generally. It ignores the fact that damage has already occurred and that discovery is not damage of itself and cannot itself cause damage. It necessarily means that the owner of the property would be selling it or otherwise dealing with it, for instance, by way of mortgage. That is to say, it involves realising a loss rather than suffering it, for the loss has been suffered when the damage or defect came into existence. It is not unknown for some owners to put up property for sale for the purposes of testing the market without any intention of actually selling or mortgaging. To my mind it necessarily draws a distinction between the damage necessary or sufficient as one of the bases of a cause of action in negligence between saleable objects, such as buildings, on the one hand and objects which are not saleable, such as the human body and, in cases of pure economic loss, cases such as tax, legal and valuation advice on the other. I can see no logical justification for any such distinction. It confuses or equates physical damage with economic damage. In the latter case no physical damage is necessary. It confuses the damage necessary for a cause of action in negligence and the evidence necessary to prove the damage or its quantum. In truth, where a latent defect exists in a physical object damage exists. Cracks in a building are surely manifestations of a latent defect which must have been working insidiously on the structure before the cracks occur just as pneumoconiosis works upon the human body before symptoms occur. As a practical matter, there is a difficulty as to by whom a defect must be known before it can be said that the market value of a building has been depreciated. The vast majority of people in Hong Kong live in flats between which and commercial or other buildings no distinction is made in this respect by legislation. Flats are usually sold "as is" with questions being raised only as to such matters as title and encumbrances. Surveys are not usually performed. An owner who knows of a serious latent defect and who sells "as is" without disclosing it would therefore not be caught by the provisions of section 26. On the other hand, in the unlikely event of a purchaser obtaining a survey report which discloses the defect the purchaser would very likely simply break off negotiations without telling the vendor why. The market value would then have been depreciated so far as that prospective purchaser is concerned, without the knowledge of the owner. Quite apart from this in the case of a house, damage may be discovered accidentally such as when a workman goes into the upper spaces of a house and notices serious cracking. Whether he chooses to say anything or not about this fortuitous discovery presents a lottery upon a lottery. A question then also arises as to the qualifications of any person who should, by chance or design, have noticed any damage or defect. In the present case, a member of the management company, Hong Kong Land, drew up a report in 1989. Findlay J found that the contents of that report were, if anything, reassuring. No doubt the author of the report found nothing alarming, but he was not a cladding expert. By contrast the overwhelming preponderance of the evidence of the cladding experts was that an expert would have recognised that that damage required further investigation. This evidence immediately takes the case out of the ambit of Invercargill where the damage by way of defects was undiscovered. More importantly, however, it does not seem right that the accrual of a cause of action should depend upon whether the damage is seen and appreciated to be damage from a latent defect by an expert or whether it is not appreciated to be such by a building manager. Finally, I note without further comment at the moment that in Invercargill, apart from Pirelli, the decision in Murphy v. Brentwood District Council [1991] 1 AC 398 was not followed.

164. Mr Thomas urged upon us Article 8 of the Basic Law which reads,

He argues that Ordinances, and in particular section 4(1)(a), are to be interpreted in accordance with common law, a proposition with which I entirely agree, and that the interpretation of section 4(1)(a) has been laid down by the House of Lords and continues to be the law of Hong Kong. Even if Mr Thomas is right, the reasoning in the decisions in England has followed a tortuous path and few of the decisions in the House of Lords have escaped criticism in subsequent decisions in the same House. It is impossible to find a consistent thread in those decisions and it seems to be that sometimes the difference between physical and economic damage has been obscured. Nor do I think that it is necessarily right to adhere to the latest decision simply because it is the most recent. In my view we are bound to return to first principles.

165. For the sake of clarity it is necessary first to dispose of matters which are not relevant to the present appeal. As I have already said, we are not concerned with whether or not any relevant duty was owed by Tsien Wui and Palmer & Turner to the Bank. Secondly, we are not directly concerned therefore with cases such as whether or not a council inspector, and thereby the council, owed a duty to the plaintiff. Thirdly, we are not concerned with cases of subsequent purchasers. The sole question with which we are concerned is the date at which any relevant damage occurred. That, however, means that we must first decide what damage is relevant. It would be impossible to deal with all of the cases which have been decided in England or, indeed, in other common law jurisdictions. To attempt to do so would be to burden this already over-lengthy judgment to an intolerable degree. Nevertheless a brief review of the major decisions is necessary. I shall deal chronologically with the decisions relating to the application of Donoghue v. Stevenson [1932] AC 562 and of Hedley Byrne & Co. Ltd v. Heller & Partners Ltd [1964] AC 465 and the question of the relevance of physical damage when the claim is one for pure economic loss.

166. The facts in Donoghue v. Stevenson, from which the modern law of the tort of negligence has been developed, are well known. If the principles laid down are to apply only to those facts or facts of that kind they would apply only to cases of (1) manufacture of consumable goods containing a latent defect (2) sold to a direct purchaser or coming into use by a person to whom a duty of care by the manufacturer exists (3) who has not had an opportunity of examining the goods and (4) who has suffered physical damage from consuming them, in other words where the defective goods cause physical damage to someone or something other than itself. The principle, however, has not been confined to such circumstances in later cases. In some of the later cases it is not clear whether or not the decisions resulted from the application of these principles. More than three decades later came the decision in Hedley Byrne, from which the modern law of negligence causing pure economic loss has developed. It was a case of negligent misrepresentation given under a disclaimer of responsibility. There was no question of physical damage to anyone or any thing. Nor, on the facts of the case, could there have been any question of physical damage. At page 472 of the report counsel for the appellants is said to have argued that the correct application of the principles in Donoghue v. Stevenson was not limited to physical damage to a person or to other property. At page 482/483 of his speech, Lord Reid said of that decision,

Lord Morris at page 496, however, said,

In the end all of their Lordships agreed that, as the headnote accurately states,

See also Yuen Kun Yeu v. A.G. of Hong Kong [1988] 1 AC 175. I may add here that some argument was advanced before us to the effect that in the presence of a contract no separate tortious duty of care can exist. The overwhelming preponderance of authority is, quite rightly, contrary to this.

167. There is a multitude of cases in the reports dealing with pure economic loss where there has been no damage to a person or other property. They deal with a range of activities relating to bankers (Hedley Byrne itself), solicitors (Midland Bank Trust Co. Ltd v. Hett, Stubbs & Kemp [1979] 1 Ch 384, Forster v. Outred [1982] 1 WLR 86, Baker v. Ollard & Bentley [1982] 126 SJ 593, D.W. Moore and Co. Ltd v. Ferrier [1988] 1 WLR 267, Bell v. Peter Browne & Co. [1990] 2 QB 495, White v. Jones [1995] 2 AC 207, Ko Ming Bor v. Lo & Lo [1997] HKLRD 749, and Henderson v. Temple Pier Co. Ltd [1998] 1 WLR 1540), insurance brokers (Iron Trade Mutual Insurance Co. Ltd v. J.K. Buckenham Ltd [1990] 1 AER 808, Islander Trucking Ltd v. Hogg Robinson & Gardner Mountain (Marine)Ltd [1990] 1 AER 826), Lloyd's underwriting agents (Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145, Aiken v. Stewart Wrightson Members' Agency Ltd [1995] 3 AER 449), consulting engineers (Hiron v. Pynford South Ltd [1991] 60 BLR 83, Pullen v. Gutteridge [1993] VR 27), estate agents (Spencer-Ward mentioned earlier), valuers (Nykredit Mortgage Bank PLC v. Edward Erdman Group Ltd [1997] 1 WLR 1627, Byrne and Byrne v. Hall Pain & Forster (a firm) [1999] 2 All ER 400 and employers' references (Spring v. Guardian Assurance PLC [1995] 2 AC 296). No doubt there are other categories to which the principle has been applied. Of interest is the decision of HH Judge Newey QC in Hiron v. Pynford South Ltd where the first plaintiffs had, upon expert advice, put in partial underpinnings to their house to which had suffered damage. The partial underpinnings were insufficient and further works consisting of complete underpinnings were required. At page 92 of the report the Judge said,

The principles in Hedley Byrne are not restricted to cases of negligent misrepresentation. They have been extended to cases where the defendant has no special expertise but who has undertaken to perform acts and to others where there has been no reliance, as in White v. Jones, but we are not concerned with those types of cases.

168. Bagot v. Stevens Scanlan & Co. Ltd [1966] 1 QB 197 was decided less than two months after Hedley Byrne by Diplock LJ sitting as an additional judge of the Queen's Bench Division. The defendant architects had agreed with the plaintiff owner to supervise the laying of a drainage system. The work was badly done. By about the end of 1961 some of the drains had broken or cracked and water escaping from them had damaged other parts of the premises. By the time the writ was issued, in April 1963, the cause of action in contract had become time barred. The claim was in tort for negligent supervision of the work. The work was completed in February 1957 by which time the defendant's duty to supervise had ceased. The defendant admitted that any damage which occurred had occurred after April 1957. The plaintiff admitted that the defendant's duty of supervision ceased before that date. Diplock LJ said at page 203,

Diplock LJ decided the case on the basis that the claim was founded in contract alone. However obiter the passage cited above may have been, it is of interest especially when Cartledge v. Jopling andHedley Byrne were cited in argument. Donoghue v. Stevenson was not cited.

169. Dorset Yacht Co. Ltd v. Home Office [1970] AC 1004 dealt with the question of whether the Home Office could be liable for damage done by escaping Borstal boys. It was held that it did owe a duty of care to owners of property which might be damaged by the boys. At 1061 in the course of his speech, after referring to the well known words of Lord Atkin at page 580 of the report of Donoghue v. Stevenson, Lord Diplock said,

It follows from this that although Hedley Byrne was a development from Donoghue v. Stevenson it is the former and not the latter which applies to cases of pure economic loss.

170. In Dutton v. Bognor Regis Urban District Council [1972] 1 QB 373, the foundations of a property had been inspected and approved by an inspector of the defendant and they had then been covered up. The house was purchased and then sold on to the plaintiff who did not have it surveyed. It was surveyed and passed, however, by the building society from whom she obtained a mortgage. Soon after the plaintiff moved in serious defects developed in the internal structure because the foundations were unsound. She sued the builder and the council but settled with the builder on advice that she could not succeed. At trial the judge found that the council came within the 'neighbour' principle and was in breach of its duty to her. An appeal by the council was dismissed. The Court of Appeal found that a duty of care existed under Dorset Yacht. It found also that Donoghue v. Stevenson applied. At page 396 Lord Denning MR cited the passage in the judgment of Diplock LJ in Bagot already set out above and held that the damage occurred when the foundations were badly constructed. At page 405 Sachs LJ expressed no conclusion on the correctness of that passage but was in agreement with Lord Denning as to the date on which the cause of action accrued. He held that Donoghue v. Stevenson applies to a defective house just as it applies to a defective article. None of the three Lords Justices adverted to the fact that the defects in the foundations, part of the house, had caused damage to itself. Lord Denning subsequently recanted his views inSparham-Souter v. Town and Country Developments (Essex) Ltd [1976] 1 QB 858 and in Murphy the decision in Dutton was held to be wrong.

171. In Sparham-Souter the council passed plans prepared by builders and issued certificates that it had inspected and that it had no reason to question the quality of the work. The plaintiff purchased two of the homes in which cracks later appeared. The plaintiff issued proceedings against both the builders and the council alleging negligence in failing to ensure that the plans and foundations complied with the relevant bye-laws, in failing to inspect the property during the work and in issuing the certificates. The cause of action in negligence in issuing the certificates was not time barred but otherwise it was held in the Court of Appeal that the cause of action accrued not at the date of the negligent act or omission but at the date when damage was first sustained by the plaintiff. Recanting his judgment in Dutton, Lord Denning said, at page 867/868,

Later at page 868, he said,

I note the following points. First, the date of accrual of the cause of action is tied to when the house began to sink and the cracks 'appeared'. That is to say, when physical damage appeared. That is to be contrasted with the speech of Lord Fraser at page 19 in Pirelli which I set out later in this judgment, where he was at pains not to use the word 'appeared'. Secondly, time does not begin to run until the plaintiff discovers that it has done damage or ought, with reasonable diligence, to have discovered it, 'it' presumably referring to the damage which has been done. On the face of it, this relates only to the plaintiff's knowledge and is subject to some of the difficulties I have already mentioned. There seems also to have been an equation between the appearance or occurrence of the damage and its discovery or discoverability.

172. Geoffrey Lane LJ at page 880 distinguished the position in a case of personal injuries from a case of a latent defect in a building. He said,

This was disapproved in Pirelli where Lord Fraser said, at page 16,

A cause of action factually exists or it does not. The evidence by which those facts are to be proved is quite another matter.

173. None of the judgments in Sparham-Souter dealt with the question of the defective house damaging itself. In Anns v. Merton London Borough Council [1978] AC 728 structural damage had been caused to a block of flats by reason of subsidence of the foundations. The plaintiffs were holders of long leases who instituted proceedings against the Council alleging negligence in allowing the builders to construct the block on deficient foundations. The matter went before the House of Lords on a preliminary issue on limitation. On the pleadings it was said by Lord Wilberforce, with whom the others of their Lordships agreed, Lord Salmon with an addition, 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. That is to say, there was a danger to a person or to something other than the building itself. At page 760 Lord Wilberforce said,

At page 770, Lord Salmon said,

Clearly, Lord Salmon envisaged a position where there was in fact damage, so that time would begin to run, even though it may not have been known. The decision did not deal with economic damage. Damage before it becomes manifest is, as he said, a matter of evidence.

174. Junior Books Ltd v. Veitchi Co. Ltd [1983] 1 AC 520 in the House of Lords on a preliminary point as to the existence of the relevant duty was not a case on limitation. The defendants were specialist floor contractors who laid a floor in factory premises for the plaintiffs. There was no contractual relationship between them and the plaintiffs sued for negligence when the floor cracked. The headnote of the report in the House of Lords dismissing the appeal of the plaintiff reads, in part,

Put shortly, Hedley Byrne was applied.

175. In Pirelli, already mentioned above, the House of Lords found that the cause of action in negligence accrued only when cracks in the chimney occurred and not when they were discovered or discoverable. Lord Fraser was especially careful in his choice of words. Thus, in the last paragraph of his speech at page 19 he said,

This may be contrasted with the passage cited above from Lord Denning's judgment in Sparham-Souter and with the decision in Invercargill. The decision in Pirelli therefore remained true to Cartledge v. Jopling, which it confirmed, in that damage occurs when it occurs and not when it is discovered or reasonably discoverable. That was, of course, the position before section 31 was brought into existence. Sparham-Souter was expressly over-ruled. The defendants were specialists who undertook to produce the plans and specifications for the chimney, the plaintiff relied upon them and suffered financial loss as a consequence. It was argued at pages 7 and 8 of the report that the fault of the defendants in advising on the design of the chimney was analogous to that of a solicitor giving bad advice resulting in his client suffering damage when acting on it but, although he did not find it necessary to decide the point, it found no favour with Lord Fraser at page 18. Pirelli affirmed that in the case of faulty design causing damage the cause of action in negligence is generally complete when physical damage occurs, whether or not it was discovered or discoverable.

176. In early 1987, the decision in Ketteman v. Hansel Properties Ltd [1987] 1 AC 189 was delivered. Owners of houses sued the local authority and the architects after cracks appeared due to faulty foundations. On the architects' appeal to the House of Lords it was argued that the damage was economic and that the damage had occurred when the houses were constructed. This argument was dealt with very briefly. Referring to Pirelli at page 205 Lord Keith said,

This reaffirmed the principle laid down in Pirelli.

177. D. & F. Estates Ltd v. Church Commissioners for England [1989] 1 AC 177 was a case where the main contractors who erected a block of flats employed subcontractors to carry out the internal plastering. One of the flats was leased to the first plaintiff, a company controlled by the second and third plaintiffs, who then occupied it. Some of the plaster was discovered to be loose and fell. There was no contractual relationship between the plaintiffs and the third defendants. The plaintiffs sued for damages in negligence, claiming, inter alia, the cost of remedial works, the cost of cleaning the carpets and other possessions dirtied or damaged by the falling plaster and loss of rent while the remedial work was carried out. The main contractors were found not liable by the Court of Appeal and the plaintiffs appealed to the House of Lords. There was no question of limitation but what was in question was whether or not there could be liability in tort for pure economic loss where a defect in the object caused damage to the object itself. The leading speech was delivered by Lord Bridge of Harwich. He referred to the judgments, including his own, in Batty v. Metropolitan Property Realisations Ltd [1978] 1 QB 554 in which the Court of Appeal held, following Anns, that relevant damage may include damage to the house itself and continued at page 201,

He went on to cite two passages from the dissenting speech of Lord Brandon in Junior Books including,

The second passage included the following,

His Lordship concluded this part of his speech at page 206 with the words,

Upon any reading, this reversed the decision of at least Junior Books. The effect on the decision in Anns was more problematical.

178. In Murphy v. Brentwood District Council [1991] 1 AC 398 the Council had referred plans to a consulting engineer and upon receiving his advice had passed them in 1969. There had been, in fact, an error in the calculations of the foundations. The plaintiff purchased the house in 1970. Thereafter the foundations cracked and there was damage to the walls and the pipes. Instead of repairing the house at the estimated cost of ￡45,000 he sold it for ￡35,000 less than the value it would have had if it had been in an undamaged condition. He sued the Council for the diminution in price on the grounds of negligence in passing the plans in breach of its statutory duties. It was held that the Council did not owe the relevant duty. As set out in the headnote,

There are, however, passages of great general importance in the judgments. First, the decision in Anns was departed from where it held that a council would owe the relevant duty to purchasers and where it held that the cause of action in negligence accrued when the building presented a present or imminent danger to the health and safety of owners or occupiers. Dutton was overruled. Secondly, it reaffirmed that the application of the principles in Donoghue v. Stevenson was confined to cases of latent defects causing damage to persons or property other than the object itself. Lord Bridge at page 478/479 said,

See also Lord Keith at page 462. Thirdly, the exception to which Lord Bridge referred in the passage cited above was first mentioned by him earlier at page 475. He said,

This is founded in good common sense and comes within the principles of Donoghue v. Stevenson although questions may arise as to whether the possibility of damage to other persons visiting the property should be relevant as opposed to those simply passing by. Such a building would present a danger of damage to persons or to property other than itself and it would be absurd if the law were to hold that an owner must be forced to wait until such damage occurs before he can seek redress. Finally, and I think most importantly, the damage sued upon was recognised to be pure economic damage. Lord Keith at page 466 also held that the damage in Anns, Junior Books and Pirelli was also pure economic damage within Hedley Byrne. The rest of their Lordships agreed.

179. The logic behind the speeches in Murphy that the damage, and therefore the claim, was for pure economic loss has important consequences. First, the claim does not fall within the principles of Donoghue v. Stevenson. It falls under Hedley Byrne. Secondly, in these circumstances physical damage is not necessary to the accrual of the cause of action. As it was put by Lord Roskill in Junior Books at page 546, the plaintiff had suffered 'damage to the pocket'. At page 536 of Hedley Byrne itself Lord Pearce, discussing the application of the principles of Donoghue v. Stevenson, said of their Lordships' speeches in that case,

Morrison [1947] AC 562 was a case of suing for contribution to amounts which had to be paid on general average. In Murphy itself in the Court of Appeal at page 434 Nicholls LJ discussed the cases of Anns, Pirelli and Ketteman in relation to physical damage and the accrual of the cause of action and mentioned on the next page,

In the House of Lords, Lord Oliver at page 484 dealt with Anns in the following way,

Then in Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145, a case of proceedings between underwriters and agents, in discussing the governing principle set out in Hedley Byrne Lord Goff said at page 178,

In some cases of negligence, such as running down, some physical damage occurs contemporaneously with the tortious act. Where some damage is not apparent it has nonetheless occurred and time begins to run although section 27 may apply. In cases of pure economic loss however, the damage is not necessarily damage to a person or other physical thing but to the plaintiff's financial state. See Invercargill at page 645. Physical damage, or its extent, may well be relevant to quantum. In other cases the negligent misstatement relied upon may result in an act which causes physical damage. A claim for negligent design is just that. It is not a claim necessarily based upon physical damage to a building erected in accordance with that design.

180. It would perhaps be going too far to say in tort that payment of fees for, say, bad advice or plans in itself represents economic damage. That may better be left to be dealt with in contract. I should note here the case of D.W. Moore where solicitors negligently drafted the covenants in an agreement. Bingham LJ at page 280 said,

The decision does not seem to take account of the fact that no actual damage might ever occur but it illustrates that the act or omission would have been the same in contract as it was in tort. The compensation for duty breached and the quantum of damages would have been exactly the same.

181. It is impossible to reconcile the conflicting dicta and ratio decidendis of these decisions and, as I have said at the beginning of my brief analysis of the authorities, we must return to first principles. Immediately that is done, logic and basic principles would dictate that the present case, like many of the others cited, is a case of economic loss and that we should not necessarily be concerned with physical damage. That approach, however, leads to practical difficulties. So, in many cases such as Nykredit Mortgage Bank PLC v. Edward Erdman Group Ltd [1997] 1 WLR 1627 loss may never occur. There the defendants over-valued property on the basis of which the plaintiff advanced for more than they would have done if they had known the true value. In the event the borrowers defaulted at once. No question of limitation arose. The measure of damages awarded was the difference between the incorrect value ascribed to the property by the valuers and the true value as at the date of the valuation. The question was the date from which the defendants were to pay interest. It was held that that date was the date when the plaintiff sustained its full allowable loss. The case demonstrates the difficulties which may arise in legal theory when despite the necessary duty existing and a negligent misrepresentation being made it cannot be said that a loss must arise. If the borrower never defaults no loss will ever be caused. The passage from the judgment of Bingham LJ in D.W. Moore set out above is logical but to my mind it poses insuperable difficulties. In that case the solicitors were sued and were found liable for negligently drafting a restraint of trade clause in a contract between the plaintiff and a director. The clause was unenforceable at law and the solicitors were found to be liable as from the date of the execution of the contract. It is difficult enough in the ordinary running-down case to calculate the damages suffered by the plaintiff. Factors such as the vicissitudes of life, loss of income and the chances of improvement or deterioration of the plaintiff's condition together with the level of expenditure for treatment and special equipment must be taken into account. At least, in these cases, projections may be assisted by expert medical and actuarial evidence. My mind revolts, however, at the prospect of a court in circumstances of D.W. Moore having to come to an assessment of damages. The director may never have left the plaintiff and, if he did, may never have acted in contravention of the clauses. Even if he did, it appears to me to be quite impossible for the court to estimate fairly how much that would have damaged the plaintiff or, for instance, for how long the plaintiff may have continued in business.

182. The decision in D.W. Moore throws up another practical difficulty. If the plaintiff had sued shortly after the execution of the contract the court may, having regard to the difficulties of assessment, have awarded a relatively minor sum. Thereafter, if and when the director had left the company and acted in contravention of the clause and the evidence showed substantial damage to the company, the company would be met by the defence that the cause of action had merged into the judgment and that there was no new breach, as to which see The Darley Main Colliery Company v. Mitchell. On the other hand a generous decision by the court might well be unfair to the defendant. These difficulties are emphasised in cases of latent defects by the words of Lord Salmon in Anns already set out earlier.

183. In D.W. Moore and in other like cases there may be a respectable argument that payment of fees for bad advice or plans represents economic damage because, however else it is put, the plaintiff has not received that for which he has bargained and for which he has paid. In my view, as I have already said, that would perhaps be going too far. There may be no further resultant damage and the sort of claim to which I have just referred seems to me to be properly the province of the law of contract rather than the law of tort. Any review of cases dealing with claims for pure economic loss shows the concern of the courts to impose reasonable limits upon the principles in a field where the potential ambit of these principles is exceptionally wide. It is permissible and right, in my view, that we should be very slow to extend these principles to the matter of fees as representing a loss in the law of tort.

184. The one undoubted principle is that for a cause of action to accrue the tortious act must have caused harm for which the Court can properly award damages. The harm may be physical or economic or both. The task of the court thereafter is to ascertain when the real harm occurred. Sometimes the evidence may be such that a reasonably precise date can be found. At other times the evidence may only allow the court to come to a conclusion as to the earliest or the latest time at which it occurred and so be able to decide whether or not the action has been brought within time. At one time I was greatly attracted to the view that the damage to the Bank occurred when it first relied upon the plans at least by the date of the first stage payment along the same line of reasoning which found favour in Hiron v. Pynford South Ltd. On further consideration, although the decision in that case may well have been right on the evidence, I do not think it can be right on the evidence in the present appeal. I gratefully adopt the analysis of the evidence set out by Litton PJ. On that evidence it is not possible, in my view, to say that at the first stage payment the Bank must have suffered a loss.

185. Like Lord Salmon in Anns I am unwilling to exclude the possibility of proof, in an appropriate case, that damage either economic or physical whether undiscovered or undiscoverable has in fact occurred. In some cases it may well be that the evidence is such that damage can only be proved by the occurrence of physical damage in which case the court will be bound to find that the physical or economic loss has occurred at the same time. I would note that so far as the reports in both the Court of Appeal and in the House of Lords this appears to have been the factual position in Pirelli. In neither report is there any mention of other undiscovered or undiscoverable damage which may have taken place before the cracks occurred. It seems to me that if there had been such evidence the date of the accrual of the cause of action would have pre-dated the occurrence of the cracks but in the circumstances that was irrelevant since any later date of the occurrence of the cracks would have put the accrual of the cause of action beyond the permitted period of limitation. I would also note here that the decision in Pirelli does not provide that the damage necessary for the accrual of a cause of action occurs only when the physical damage has become manifest. In this respect I must differ, although with the greatest of diffidence, from the passage of the judgment of Lord Oliver in Murphy set out earlier. There his Lordship said that it would make no sense to accord a remedy when the defective nature of the structure had manifested itself by some physical symptom but to deny it where the defect had been brought to light, for instance, by a survey. With respect, Pirelli does not go so far. The importance of the results of a survey is that it shows that damage exists not that it is shown. Far from excluding that, Pirelli proceeds upon the basis of Cartledge v. Jopling that damage exists whether or not it is discovered or discoverable.

186. The decision in Pirelli has been subjected to much criticism in the later decisions and in academic writings. There is no doubt that the decision is not perfect but I think that in the absence of legislation it would be impossible to lay down an all-enveloping principle other than that in tort the cause of action accrues when relevant damage is sustained, whether the cause of action be governed by Donoghue v. Stevenson or Hedley Byrne. For myself, I am of the view that Pirelli was in fact a case of economic loss but where the evidence is otherwise insufficient to ascertain the date of such a loss the court may, if not must, take the date of the occurrence of the physical damage as being the date of the economic loss. I would dismiss this appeal on the grounds that

Leave was given for the defendants to argue a question of contribution should the appeal go against both of them. In the circumstances this does not arise.

Mr Justice Bokhary PJ:

187. This final appeal is from a judgment handed down by the Court of Appeal (Mayo, Leong and Rogers JJA) on 7 July 1998. That judgment covered two appeals which the Court of Appeal heard together. Those two appeals were from a judgment handed down by Findlay J on 25 June 1997 in two consolidated actions.

188. Those actions arose out of the failure of the granite cladding of a multi-storey building. Such failure was due to the faulty design of the system for fixing the granite panels to the concrete structure of the building. The design failed to make the necessary allowance for the weight of the panels or the movement to which they would be subjected by: shrinkage as concrete dried; "creep" as the building settled downwards; thermal expansion; and wind. The building was constructed in the early 1980s. Its occupation permit was issued on 9 November 1982. And its certificate of practical completion was issued on 7 March 1983. This is the building which houses the headquarters at 10 Des Voeux Road Central of the appellant, the Bank of East Asia ("BEA").

189. Gammon Building Construction Ltd was the main contractor. Bolton Construction Co. Ltd was the building contractor. The 1st respondent, Tsien Wui Marble Factory Ltd ("TW") was the nominated sub-contractor for the cladding. Palmer & Turner ("P & T") were the architects and structural engineers. The 2nd to 5th respondents were the partners of P & T at the material time. I will refer to them as "the P & T partners".

190. BEA sought damages in the sum of $38,502,951.85 to compensate it for the failure of the cladding. This sum of $38,502,951.85 is made up of $38,409,686.50 as the costs of rectification works and $93,265.35 as consultant's fees. BEA's action against TW was commenced on 20 June 1994. Its action against the P & T partners was commenced on 25 May 1996. These two actions were in due course consolidated.

191. As against TW, BEA claims on two bases. The first is contract. But BEA accepts that the claim in contract is time-barred save in so far as it is based on a guarantee by TW of the cladding's fixing for the life of the building. TW disputes the existence of any such guarantee. The second basis on which BEA claims is tortious liability. TW denies that any such liability on its part ever arose. Alternatively it says that if any such liability on its part had arisen, then the claim against it in tort is time-barred.

192. As against the P & T partners, BEA claims on one basis only, namely tortious liability. BEA accepts that its claim against the P & T partners in contract is time-barred. The P & T partners accept that tortious liability on its part had arisen. But they say that the claim against them in tort is time-barred.

193. Findlay J held that TW had not given any guarantee, and that no tortious liability on its part had arisen. Accordingly he dismissed the claim against TW and, in consequence, the third party proceedings which TW had brought against the P & T partners. He held that the claim in tort against the P & T partners was within time. Accordingly he gave judgment for BEA against the P & T partners for damages in the sum of $38,502,951.85 as claimed, being satisfied that that sum represented BEA's loss, and awarded interest on that sum at the judgment rate from the date of judgment to the date of payment.

194. The P & T partners appealed to the Court of Appeal against so much of the judge's judgment as decided in BEA's favour against them. BEA appealed to the Court of Appeal against so much of the judge's judgment as dismissed its claim as against TW. The two appeals were heard together. The P & T partners' appeal was allowed. The Court of Appeal held that the claim against them was time-barred. BEA's appeal was dismissed. The Court of Appeal was unanimous in agreeing with the judge that TW had not given any guarantee. Mayo JA held that tortious liability on TW's part had arisen, but that the claim against it in tort was time-barred. Rogers JA, on the other hand, held that no tortious liability on TW's part had arisen, but that BEA's claim in tort against TW would be time-barred if such liability had arisen. It is not possible to get any assistance from Leong JA's judgment because although Mayo JA and Rogers JA reached opposite conclusions on the question of tortious liability on TW's part, Leong JA said that he agreed with the conclusions reached by both of them.

195. Having been left by the Court of Appeal without any relief against anyone, BEA now appeals to this Court, seeking judgment against TW and the P & T partners for $38,502,951.85. TW and the P & T partners resist the appeal. Having obtained the leave of a single permanent judge of this Court to do so, the P & T partners have addressed the Court on the question of TW's potential liability to BEA. The Court has also heard argument on the question of contribution as between TW and the P & T partners.

No longer any issue as to quantum; only as to liability

196. There is no longer any issue as to quantum. TW and the P & T partners do not dispute that the proper award of damages to BEA, if it succeeds on liability, would be one in the sum of $38,502,951.85. Nor is there any issue as to interest. If there is an award of damages, the only interest thereon will be interest at the judgment rate from 25 June 1997 (when Findlay J gave judgment) until payment. So the only issues before this Court go to liability, the ultimate questions being:

The cladding

197. The cladding in the present case is not of the traditional type where panels are cemented to the building's concrete structural frame. It is of the type known as "dry-hung" or "hollow backed" cladding, where the panels are affixed to the building's concrete structural frame by gravity fixings and restraint fixings.

Mr Ragaglini

198. The facts found by the judge included the following:

CONTINUING GUARANTEE BY TW?

199. I turn now to consider the first basis on which BEA claims against TW, namely a continuing guarantee. Did TW guarantee the cladding' fixing for the life of the building?

200. BEA submits that TW had a continuing obligation to it under the contract between them. This contract is contained in or evidenced by a Form of Agreement dated 16 February 1981 but entered into on 18 May that year ("the Form of Agreement") and the Specification which the Form of Agreement incorporates. This obligation, BEA submits, amounted a guarantee of the cladding's fixing for the life of the building.

201. Clause A(1)(a) of the Form of Agreement says that TW warrants that it "has exercised and will exercise all reasonable skill and care to ... the satisfaction of any performance specification". Under the heading "2.15 FIXING", the Specification says that TW "will be expected to guarantee the fixing for the life of the building bearing in mind the typhoon conditions in Hong Kong".

202. BEA's submission continues thus. The parties did not contemplate that TW would execute a separate document to give effect to such guarantee. And upon the true construction of the Form of Agreement together with the Specification, TW had a continuing contractual obligation to guarantee the fixing for the life of the building. So the claim in contract against TW subsists for life, and is not time-barred. TW is self-evidently in breach of this contractual obligation, and is therefore liable to BEA.

203. TW submits that the courts below were right in holding that there could be no continuing guarantee of the fixing for the life of the building in the absence of a separate document embodying a guarantee. There was no such document. Accordingly, TW submits, there was no guarantee.

204. I do not consider it necessary to say very much about this part of the appeal. What BEA is trying to get from the words in question is in effect an indemnity from TW to it against loss suffered as a result of failure of the cladding due to TW's part to exercise reasonable skill and care whenever such failure occurs. But I simply do not see how BEA can get that from those words. In my judgment, this head, however labelled, does not provide a basis on which BEA can succeed against TW. It is necessary therefore to turn to BEA's claim against TW in the tort of negligence.

TORTIOUS LIABILITY ON TW's PART?

205. The second basis on which BEA claims against TW is, as I have said, tortious liability.

206. As to this, TW contends as follows. Its duty of care in regard to the fixing system was limited to using reasonable skill and care in the selection of an independent consultant/designer. It discharged this duty when it selected Mr Ragaglini. Accordingly it is not liable to BEA in tort.

207. BEA, on the other hand, contends as follows. The relationship between BEA and TW was a special one under which TW owed BEA a non-delegable duty of skill and care. Thus Mr Ragaglini is to be taken as having acted vis-a-vis BEA as TW's agent for the purpose of discharging TW's duty, and his failure is TW's failure. Moreover, the work was of an inherently dangerous nature, since it involved large granite panels affixed to a high-rise building abutting the highway. So even if Mr Ragaglini was merely an independent contractor, public policy excluded any defence by TW based on delegation of the work to an independent contractor.

208. In my judgment, the legal position is as follows. Their contractual relationship and the obligations thereby undertaken by TW (as cladding contractor) to BEA (as building owner) created a special relationship of proximity between them. And this special relationship of proximity gave rise to a duty in tort on TW's part to exercise reasonable skill and care to avoid economic loss to BEA arising out of the failure of the building's cladding.

209. It was open to TW to engage Mr Ragaglini ? in any capacity as between itself and Mr Ragaglini that he and it agreed ? to do work which was TW's obligation to do for BEA. But that did not relieve TW of its duty to BEA even though BEA were content that Mr Ragaglini be brought in. It is one thing to say that BEA was content that Mr Ragaglini be brought in. It is another thing altogether ? and groundless ? to suggest that BEA is to be taken as having been content not to have TW to look to if things went wrong.

210. The judge started off correctly in finding that TW was "responsible for the design of the system for the fixing, including making allowance for movement". But he then went wrong by absolving TW from liability on the basis that the present case was not "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". The judge said this in that part of his judgment which he put under the sub-heading "Did TW Discharge this Responsibility with Reasonable Skill and Care?" As it seems to me, he incorrectly treated the question of breach in a way which contradicted his own correct treatment of the question of duty.

211. As a matter of fact, the work was delegated. But as a matter of law, the tortious duty of skill and care, being co-extensive with the duty in contract, was not delegable.

212. This case has nothing to do with any third party claim (eg one by the owner of a vehicle damaged by a falling fragment of cladding as it was driven past the building) in which it is sought to argue that TW is vicariously liable for Mr Ragaglini's negligence. If there had been such a claim, that argument might well have succeeded on the basis that TW were undertaking an extra hazardous operation abutting a highway.

213. TW accepts that if it was under a duty in tort to exercise reasonable skill and care to avoid economic loss to BEA arising out of the failure of the building's cladding, then it is in breach of the duty. It was under such a duty. So it is in breach of the same.

LIMITATION

214. This brings me to the question of limitation. As far as its claim against TW in tort is concerned, limitation is the last hurdle facing BEA. And as far as its claim against the P & T partners is concerned, limitation is the only hurdle facing BEA.

Section 4(1) of the Limitation Ordinance, Cap. 347

215. All my references to statutory provisions will be to those of the Limitation Ordinance, Cap. 347, save where it is stated to the contrary. The first "limitation" question in regard to each action is whether it is within time under s.4(1) which provides that actions founded on simple contract or on tort shall not be brought after the expiration of 6 years from the date on which the cause of action accrued. Since the action against TW was commenced on 20 June 1994, it would be within time under s.4(1) if the cause of action did not accrue before 19 June 1988. And since the action against the P & T partners was commenced on 25 May 1996, it would be within time under s.4(1) if the cause of action did not accrue before 24 May 1990.

Section 31

216. The second "limitation" question in regard to each action arises if the "first" limitation question is determined against BEA. It is this: if the action is not within time under s.4(1), is it nevertheless within time by virtue of s.31?

217. Section 31 provides that:

218. Pausing here, one sees that subsection (1) thereof provides that s.31 does not apply to actions for damages for negligence to which s.27 applies. Section 27 applies to personal injury cases. And, it is also to be noted, s.27(2) provides that s.4 shall not apply to an action to which s.27 applies.

Longstop

219. The picture of the statutory scheme would be incomplete without a reference to the 15-year longstop laid down by s.32 in respect of negligence actions not involving personal injuries. Section 32 reads:

Section 38(A)

220. Finally it is necessary to note the provisions of subsections (2) and (3) of s.38A, which read:

So 1 July 1985 would be a crucial date if anything were to turn on s.31. This is because BEA's cause of action would have been time-barred before 1 July 1991 unless it accrued after 1 July 1985.

221. The position is therefore as follows. Even if the action against TW is not within time under s.4(1), it will nevertheless be within time by virtue of s.31 if:

And even if the action against the P & T partners is not within time under s.4(1), it will nevertheless be within time by virtue of s.31 if:

Economic loss

222. I will soon come to the authorities. There are, before that, three matters with which I have to deal: (i) whether BEA's loss is economic loss; (ii) whether this is a case of latent defects or one of patent defects; and (iii) the judge's findings of fact as to knowledge.

223. The first matter can be dealt with very briefly. It is common ground between all the parties that BEA's loss is economic loss.

Latent or patent defects?

224. For the respondents it is contended that the defects in the building were patent, not latent. The arguments advanced in support of this contention run thus. The lack of large enough gaps between slabs to take up movement from shrinkage, creep etc. were obvious from the available drawings or from a simple inspection of the cladding. It would have been obvious to, for example, a prudent and careful architect or building surveyor examining the building, whether for BEA or for a prospective buyer. The defects were therefore patent, not latent.

225. In my judgment, the contention that the defects in the building were patent, not latent cannot begin to succeed. It was never pleaded. At the trial each side conducted its case on the basis that the defects were latent. The contention that they were patent was raised for the first time in the Court of Appeal. Had it been raised at the trial, the course of the evidence may well have been different. On the evidence which was adduced, the judge's findings of fact as to knowledge point to the defects being latent. And those findings of fact were supported by the Court of Appeal, so that they come to us as concurrent findings of fact. In any event, the arguments advanced on behalf of the respondent are flawed for this reason. There is a world of difference between, on the one hand, seeing what the width of a gap is and, on the other hand, realising that such width is insufficient. For all these reasons, I proceed on the basis that this is a case of latent defects.

The judge's findings of fact as to knowledge

226. As to physical damage, the judge noted - and appears to have accepted - "the view of the experts ... that physical damage to the cladding system started to occur within the first few years after 1982". And he referred to - and appears to have accepted - evidence "that marks on the surface of the granite panels could be seen in 1984 and 1985".

227. But he did "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". And as to knowledge, his findings of fact, which the Court of Appeal supported and therefore come to this Court as concurrent findings of fact, are these:

I see no basis on which to disturb these findings.

The Pirelli case

228. In Pirelli General Cable Works Ltd v. Oscar Faber & Partners [1983] 2 AC 1 the House of Lords held that the cause of action in tort for physical damage to a building accrued, so that period of limitation began to run, as soon as such damage came into existence, irrespective of knowledge or means of knowledge. Pirelli was decided as one of physical damage rather than economic loss. But in Murphy v. Brentwood District Council [1991] 1 AC 398 the House of Lords, categorized cases of latent building defects as cases of economic loss rather than physical damage. So one possible approach to the Pirelli decision is to read it as being confined to physical damage, and not economic loss.

229. The argument for TW and for the P & T partners is that the loss in the present case was suffered when the building was completed and paid for in 1982, so that the cause of action accrued then and became time-barred in 1988.

The Nykredit case

230. As to when the cause of action accrues, uniformity of approach across the board as far as possible is certainly desirable. Nevertheless each class of case must be analysed with care in order to ensure that it is approached in a way that matches the true nature of the cause of action involved. This is well illustrated by the decision of the House of Lords in Nykredit Mortgage Bank PLC v. Edward Erdman Group Ltd [1997] 1 WLR 1627.

231. Nykredit is not a case on limitation. It nevertheless turned on when loss was first suffered. That was when the cause of action accrued. When the cause of action accrued mattered because it marked the start of the period in respect of which interest on damages could be awarded under the applicable statutory provision. Shortly stated the facts were these. The plaintiff bank had made a loan on the security of a property which the defendant valuers had negligently overvalued. The borrower defaulted almost at once. And the realization of the security left a shortfall.

232. The other three law lords hearing the appeal in Nykredit agreed with Lord Nicholls of Birkenhead and Lord Hoffmann.

233. At p.1631 B-C Lord Nicholls of Birkenhead pointed out: that (i) in one sense a lender on overvalued security undoubtedly suffers detriment when the loan transaction is completed; but that (ii) in another sense he may suffer no loss at that stage because the borrower may not default. His Lordship then posed (at p.1631 D) the question: "When, then, does the lender first sustain measurable, relevant loss?" (Emphasis supplied.) At p.1631 E-F his Lordship said that:

234. And at pp 1631 H-1632 A his Lordship said:

Thus the cause of action may accrue at the time of the defendant's negligence, or it may accrue only at a later stage because measurable, relevant loss was first sustained at that later stage.

235. As to when the cause of action accrued in the events which happened in Nykredit itself, Lord Nicholls of Birkenhead said this (at p.1635 A-B):

236. At p.1639 C-D Lord Hoffmann said that: "Relevant loss is suffered when the lender is financially worse off by reason of a breach of the duty of care than he would otherwise have been."

The Invercargill case

237. In Invercargill City Council v. Hamlin [1996] AC 624 the Judicial Committee of the Privy Council analysed the legal position in cases of latent building defects. As I understand their Lordships' approach, it comes to this. In cases of latent building defects, the building owner's cause of action accrues when the latent defects become patent. This is when they become so obvious that any reasonable building owner would call in an expert. What would be obvious to a reasonable building owner would be likewise obvious to any reasonable potential purchaser, or his expert. Accordingly the time when the defects become patent in the sense explained above is the point in time when the building is depreciated by the defects. And that must therefore be the point in time when the economic loss occurs and the cause of action accrues. If it is reasonable to effect repairs to the building, the cost of such repairs will represent the measure of the building owner's economic loss flowing from the defects. If, on the other hand, it is not reasonable to effect such repairs, then the depreciation in the market value of the building brought about by the defects will represent the measure of such economic loss.

238. I do not see how that can be confined to New Zealand. Either it is convincing or it is not. Nor do I think that it can be confined to limitation. As Nykredit demonstrates, when loss first occurs, and therefore when the cause of action accrues, can be crucial to issues other than limitation.

239. It is not a question of postponing the accrual of the cause of action until the loss is discovered or discoverable. That would be to impose a test of discoverability. Nor is it a question of extending the limitation period set by s.4. That is the function of s.31 where it applies, subject to the s.32 longstop. Rather it is a question of recognizing that the economic loss in building defects cases occurs when the market value of the building is diminished upon the defects ceasing to be latent and becoming known to the market as represented by reasonable people in the marketplace. That is when the building will, absent reasonable repairs, be depreciated: as an asset and also in terms of the potential proceeds of a possible sale. I think that one has to look at the matter along such lines if the term "economic loss" is to have substance and real meaning. Otherwise it would be difficult to see how the term gets beyond being a mere label. Put in Nykredit terms, I would say that the depreciation marks the onset of "measurable" loss and when the building owner becomes "financially worse off".

240. Invercargill does not say in what circumstances it would be unreasonable to effect repairs. Such circumstances would, as I see it, include those in which the depreciation in the market value can be seen to be less than the cost of repairs. That would eliminate the objection against the plaintiff recovering damages in excess of depreciation when his loss is economic loss represented by depreciation. There may well be cases where the damages will be represented by the cost of repairs plus something extra if the repairs do not wholly eliminate the depreciation. That would be the position where it can be shown that the price which potential buyers are prepared to pay is diminished by reason of the building's unfortunate history of having had to be extensively repaired.

241. I should mention that counsel adverted to, but did not address us on, the decision of the House of Lords in Ruxley Electronics & Construction Ltd v. Forsyth [1996] 1 AC 344. This is understandable. As far as the proper basis for compensation is concerned, cases like the present one are very different from cases like Ruxley. Cases of economic loss flowing from the depreciation of a building are, by definition, very different from cases like Ruxley where the property was not depreciated. There the householder received a pool with a diving area only 6 feet deep even though the contract specified a diving area 7 feet 6 inches deep. But the shortfall did not render the pool unsuitable for diving or adversely affect the value of the property.

The Sutherland Shire case

242. In Sutherland Shire Council v. Heyman (1985) 157 CLR 424, a well known decision of the High Court of Australia, Deane J said (at p.505) that "any loss or injury involved in the actual inadequacy of the foundations is sustained only at the time when that inadequacy is first known or manifest. It is only then that the actual diminution in the market value of the premises occurs". The passage in which those words appear was quoted with approval in Murphy at pp 466 H-468 D by Lord Keith of Kinkel in a speech which received the general agreement of the six Law Lords sitting with him in their Lordships' House. That passage was also quoted with approval by Lord Lloyd of Berwick in Invercargill at pp 647 E-648 B when delivering the advice of their Lordships' Board presided over by, as it happens, Lord Keith of Kinkel himself.

243. It is suggested on behalf of the P & T partners that even though he had in Murphy quoted with approval the passage from Deane J's judgment in which the words set out above appear, Lord Keith of Kinkel is not to be taken to have approved of those highly significant words themselves. Assuming that to be open to question, still there can be no doubt that Lord Keith of Kinkel is party to the approval in Invercargill of those words of Deane J in Sutherland Shire.

The Invercargill approach should be adopted

244. I do not think that there can be any doubt that any layman would condemn as an absurdity, injustice and mockery the notion of someone having something which lawyers call a "cause of action" but which secretly comes about and just as secretly goes away before the victim of a legal wrong can go to a court for a remedy. And there is a large collection of statements by eminent judges to like effect. It is true that that notion has nevertheless go into the common law as something which can sometimes happen. And it is likewise true that this is recognized in statute law in the course of providing some relief against the notion's rigours. But, as one sees from Nykredit for example, it is not always the case that measurable loss occurs as soon as the wrong is done. That the notion in question is embedded in some situations is one thing. To extend it to all or any other situations is another thing.

245. In my view, the Invercargill approach is correct, and ought therefore to be followed. Doing so, I might add, does not involve disagreeing with the House of Lords or presuming to predict how their Lordships may decide future cases. It is true that in Pirelli the House of Lords treated building defects cases as cases of physical damage, while in Invercargill the Privy Council treated them as cases of economic loss. But it must be remembered that in so doing the Privy Council was following the House of Lords' latest decision on the point, Murphy. And as to when the cause of action accrues in respect of economic loss flowing from building defects, there is no decision of the House of Lords on the point.

246. TW says that Parliament must have passed the Latent Damage Act 1986 on the assumption that the Pirelli decision is sound. And, TW says, the Legislative Council must have amended the Limitation Ordinance by the addition of s.31 (based on that Act) on the same assumption. All of this is, I think, true as far as it goes. TW then continues by inviting the Court to consider whether this legislative assumption precludes development of the common law at variance with such assumption. In my view, it does not. I will, in a moment, come to the principle on which I proceed. Before that I would just observe that developing the law at variance with the assumption that the Pirelli decision is sound is something which the House of Lords itself has already done. Although this was done in a context other than limitation, it was nevertheless done in a fundamental respect. I refer of course to Murphy itself where, as we have seen, their Lordships categorized building defects cases as cases of economic loss even though Pirelli proceeded on the basis that they were cases of physical damage.

247. Turning to principle, I say at once that I reject the notion that just because legislation is passed to provide relief, or some measure of relief, against an injustice created by a judicial decision, the legislature is to be taken to have set that decision in stone so that the courts are forever debarred from revisiting it. My rejection of such a notion is, as I see it, fully supported by the decision of the House of Lords in Birmingham Corporation v. West Mindland Baptist (Trust) Association (Inc.) [1970] AC 874. At p.898 F-H Lord Reid said:

248. To like effect Lord Morris of Borth-y-Gest said at p.908 E-G:

249. Lord Upjohn said (at p.908 G-H) that he agreed with Lord Reid, Lord Morris of Borth-y-Gest and Lord Donovan.

250. Lord Donovan said at p.911 A-B that:

251. Finally Lord Wilberforce said (at p.913 B-C) that he agreed with Lord Reid.

252. It is to be remembered that s.31 does not say anything as to what constitutes any given cause of action or when any given cause of action accrues.

253. For those reasons, I am of the view that both actions are within time under s.4(1), and that it is unnecessary further to consider s.31.

RESULT AS FAR AS BEA IS CONCERNED

254. I would hold that BEA is entitled to judgment against TW and the P & T partners for: damages in the sum of $38,502,951.85; interest thereon at the judgment rate from 25 June 1997 until payment; and costs here and in the courts below.

CONTIRBUTION BETWEEN TW AND THE P & T PARTNERS

255. For the reasons given above, TW and the P & T partners are both responsible for the damage suffered by BEA, and are therefore jointly and severally liable in tort to BEA for such damage. What remains to be done is to apportion such responsibility between them under the Civil Liability (Contribution) Ordinance, Cap. 377. On the material to hand, I do not see how this Court can confidently draw any distinction between TW and the P & T partners' share of such responsibility. As I see it, the only apportionment which this Court is in a position to make is a 50:50 apportionment.

256. I do not consider remitting the matter for a trial on the issue of apportionment to be a viable option in all the circumstances. That may or may not result in an apportionment other than a 50:50 apportionment. And whatever it results in, it would take time and cost money. Moreover there would be a risk of yet another appeal to the Court of Appeal and perhaps even another appeal to this Court. This case should end now.

257. All things considered, I am of the view that this Court must undertake the apportionment of responsibility as between TW and the P & T partners and, doing so, make a 50:50 apportionment between them. This is how I would deal with contribution between TW and the P & T partners.

CONCLUSION

258. I would allow the appeal so as to enter judgment for BEA against TW and the P & T partners for: damages in the sum of $38,502,951.85; interest thereon at the judgment rate from 25 June 1997 until payment; and costs here and in the courts below.

259. As to contribution between TW and the P & T partners, I would: apportion their responsibility in respect of such damages, interest and costs on a 50:50 basis; and order contribution accordingly. I would make no order as to costs between TW and the P & T partners.

Mr Justice Nazareth NPJ:

260. The ultimate question in this appeal is when the plaintiff bank's cause of action accrued. This turns upon whether it was physical damage or economic loss that was suffered and when. The law on these matters is by no means clear. Nor are the facts. That is amply demonstrated in the judgments of Litton and Ching PJJ; to the penetrating analyses of the facts and the authorities in those respective judgments, there is nothing I can add.

261. It is not only in the foregoing respect that the law is less than clear. The Common Law "maintained" by Article 8 and sanctioned by Article 18 of the Basic Law as part of the Law of the Hong Kong Special Administrative Region must in general terms be the Common Law of England as applied to Hong Kong immediately before 1 July 1997. Furthermore, this Court would not be bound by decisions of the House of Lords in identifying and developing the Common Law of Hong Kong (Tang Siu Man v HKSAR [1998]1 HKC 371 at 393A-B, 405I). It may be thought, however, that this Court would not depart from the law as it applied immediately before 1 July 1997 without good reason.

262. In that overall obscure and seemingly intractable context, with decisions and views of the highest authority pointing in diverging directions, it is helpful to commence by resorting to the relevant provisions of the Limitation Ordinance (Cap. 347), i.e. ss 4(1), 31, 32 and 38A ("the 1991 Amendments"). Of the validity and applicability of these at least, there is no doubt. In determining the effect of those Amendments, it is not the view of the law taken by the legislature in enacting them, whether that was mistaken or not, that matters. What matters is the effect of the Amendments.

263. Both Litton and Ching PJJ have examined the implications of the 1991 Amendments in some detail in the foregoing regard. I agree for the reasons they have given that those provisions are sufficiently inconsistent with the discoverability principle in Invercargill City Council v Hamlin [1996] AC 624 as to effectively preclude its adoption here. In particular, Hong Kong lacks anything like the longstanding legal regime in New Zealand that conduced to the adoption of the discoverability principle there. Moreover, the 1991 Amendments were specifically enacted to deal with latent defects.

264. It has to be said that Invercargill does have an immediate, if superficial attraction of a moral nature. However, this cannot surmount the inconsistency referred to. With Invercargill no longer an option, the approach in Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983]2 AC 1 appears to me also to be the most suitable and I agree in any event with the analysis, reasoning and conclusion of Ching PJ leading to the recognition of that approach as such. That is not to say that it provides a perfect solution to the question of when a cause of action in latent damage cases accrues with specific reference to when loss or damage occurs. Clearly, as Ching PJ himself has recognised, it may not. Anything like a perfect or comprehensive answer would have to make provision for a wide range of circumstances, not all of which could necessarily be foreseen. In that respect, the problem would be more amenable to the legislative than the judicial process. The former might in any event be more appropriate given that limitation was introduced by legislation in the first place, and moreover, that the present legislation resulted from amendments specifically made to provide for latent damage. Be all of that as it may, I agree that the Pirelli approach, as explained by Ching PJ, seems not only the most appropriate, but also to best accord with the authorities in general.

265. Likewise, I would adopt the thorough analysis made by Litton PJ of the evidence and his conclusions as to when the physical damage first occurred.

266. Accordingly, I would also dismiss the Bank's appeal against both the defendant architects and the cladding subcontractors.

Lord Nicholls of Birkenhead NPJ:

267. I agree with the judgment of Mr Justice Bokhary PJ. I add some observations only on the question of limitation.

268. The plaintiff bank's cause of action in negligence against the architects and the specialist cladding subcontractors did not accrue until the bank suffered relevant damage. Then, and only then, did time start to run against the bank. This is axiomatic.

269. On this appeal it was common ground between the parties, in my view rightly so, that the relevant damage was financial (or economic) loss sustained by the bank, not physical damage to the building. In a given case, depending on the facts, the presence of physical damage to a building may march hand-in-hand with the building owner suffering financial loss by having to put his hand into his pocket. But this is by no means always so. Physical damage to the building and financial loss to the owner are not necessarily linked. A defect may exist, and a building owner may suffer financial loss, before any physical damage has occurred. To make the accrual of a cause of action, and the running of time, dependent on the presence or absence of physical damage to a building would be to ignore the realities of defectively designed or defectively constructed building works. This is spelled out lucidly by I N Duncan Wallace QC in his article in (1989) 105 LQR 46, 57-59. Hence the sounder test in law, which has now gained general acceptance, is that what matters is when the building owner first suffered financial loss or detriment: see the decision of the House of Lords in Murphy v. Brentwood District Council [1991] 1 AC 398.

270. As to when that date occurred in the present case, there are two competing alternatives. One possibility, for which the defendants contended, is the date when the bank accepted and paid for its new headquarters building. At that date the bank acquired a building which was substandard because of an inherent defect in its design. Unbeknown to the bank, the building was intrinsically less valuable than it should have been. When the defect came to light, a substantial amount of money would have to be spent on making good the defect.

271. The alternative possibility, for which the bank contended, focuses more closely on the value of the building. The market value of a defective building remains undiminished until the defect is discovered or could be expected to come to light from inspections a prudent building owner or purchaser would make. Until then the building owner used the building as intended and suffered no untoward financial effects from the existence of the defect. Thus, according to this alternative, a building owner suffers no financial loss until the defect comes to light or in the ordinary course would have done so. In short, the crucial factual feature is the date when the existence of the defect became known or patent. Until then, and herein lies the reconciliation of this approach with orthodox doctrine, the would-be plaintiff sustained no damage and, hence, time did not begin to run against him.

272. Despite powerful arguments to the contrary, the preponderance of high authority now supports the view that, as regards latent defects in buildings, the second possibility is to be preferred. This approach has been adopted in Australia, in the decision of the High Court in The Council of the Shire of Sutherland v. Heyman (1984-1985) 157 CLR 424, 505, per Deane J. This is also the approach preferred by the courts in New Zealand, culminating in the decision of the Judicial Committee of the Privy Council, comprising Lord Keith of Kinkel, Lord Browne-Wilkinson, Lord Mustill, Lord Lloyd of Berwick and Sir Michael Hardie Boys, in Invercargill City Council v. Hamlin [1996] AC 624. There has been no decision on this point by the House of Lords, but in Murphy v. Brentwood District Council [1991] 1 AC 398, 467, Lord Keith accepted Deane J's reasoning as incontrovertible.

273. It is, of course, the fact that the limitation legislation applicable to latent defects in buildings is not the same in each of these countries. Further, the new regarding the circumstances in which a duty of care arises is not the same. But these differences are irrelevant to the point now being considered. The reasoning underlying this preferred approach owes nothing to these considerations.

274. I recognise that this approach gives the concept of financial detriment, in this context, a narrower rather than a broader meaning. This approach involves the concept that payment for services in connection with the construction of a building with an undiscovered latent defect is not in itself financial loss or detriment. This is so, even when the defect is such that at some future date expensive repairs will probably become necessary, with a consequential diminution in the market value of the building when this is realised. This concept may not be easy to reconcile with some of the authorities concerning defective documents.

275. I also recognise that this approach does not fit happily with the scheme underlying section 31 of the Limitation Ordinance, Cap. 347, and the corresponding provisions in the Latent Damage Act 1986.

276. Despite these considerations, I am not persuaded it would be right for this court to depart from the authoritative approach already adopted elsewhere on this highly debatable point. In particular, the Latent Damage Act 1986 and the Limitation Ordinance, Cap. 347, did not define when a cause of action for negligence accrues. That remained, as before, a matter to be determined by the application of principles of the common law. The Act, and subsequently the Ordinance, were enacted on the basis of the common law as enunciated in Pirelli General Cable Works Ltd v. Oscar Faber & Partners [1983] 2 AC 1. But this legislation cannot be regarded as having frozen the common law as thus enunciated, and Pirelli has already been overtaken. Pirelli treated the onset of physical damage to the building as the relevant damage in cases of claims for negligence in the design or construction of buildings. As already noted, that analysis of the relevant damage is no longer regarded as satisfactory. To treat Pirelli as still the guiding principle in this field would be to take a retrograde step for which I can see no justification.

Mr Justice Litton PJ:

277. By a majority of 3-2 this appeal is dismissed with costs.