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)
_____________________

Between:

THE BANK OF EAST ASIA, LIMITED Appellant

(Plaintiff)

- and -

TSIEN WUI MARBLE FACTORY LIMITED 1st Respondent

(1st Defendant)

REMO RIVA 2nd Respondent

(2nd Defendant)

JAMES HAJIME KINOSHITA 3rd Respondent

(3rd Defendant)

HEINZ ARTHUR RUST 4th Respondent

(4th Defendant)

NICHOLAS DELISLE BURNS 5th Respondent

(5th Defendant)

- and -

REMO RIVA
JAMES HAJIME KINOSHITA Third
Parties
HEINZ ARTHUR RUST

NICHOLAS DELISLE BURNS

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_____________________

Court: Mr Justice Litton PJ, Mr Justice Ching PJ,

Mr Justice Bokhary PJ, Mr Justice Nazareth NPJ
and Lord Nicholls of Birkenhead NPJ

Date of Hearing: 16, 17, 18, 19, 22 and 23 March 1999

Date of Judgment: 10 December 1999

JUDGMENT

Mr Justice Litton PJ:

Introduction

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”).

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
 - 3 -

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.

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.

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

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
 - 4 -

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.

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

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.

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
 - 5 -

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.

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:
“(1) The following actions shall not be brought after the expiration of 6
years from the date on which the cause of action accrued, that is to say―
(a) actions founded on simple contract or on tort ….”

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:

“It appears to me to be unreasonable and unjustifiable in principle that a

cause of action should be held to accrue before it is possible to discover
any injury and, therefore, before it is possible to raise any action. If this
were a matter governed by the common law I would hold that a cause of
 - 6 -

action ought not to be held to accrue until either the injured person has
discovered the injury or it would be possible for him to discover it if he
took such steps as were reasonable in the circumstances. The common
law ought never to produce a wholly unreasonable result, nor ought
existing authorities to be read so literally as to produce such a result in
circumstances never contemplated when they were decided.”

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.

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:

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

(b) the date (if later) of the plaintiff’s knowledge.

Knowledge for this purpose included knowledge that the injury

was significant and was attributable to the act or omission constituting
negligence.
 - 7 -

Pirelli

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.

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:
 - 8 -

“It seems to me that there is a true analogy between a plaintiff whose body
has, unknown to him, suffered injury by inhaling particles of dust and a
plaintiff whose house has unknown to him sustained injury because it was
built with inadequate foundations or of unsuitable materials ….”

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

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.

Section 31, as relevant, reads:

“Section 31(1) This section applies to any action for damages for
negligence … where the earliest date on which the plaintiff or any person
in whom the cause of action was vested before him first had both―
(a) the knowledge required for bringing an action for damages
in respect of the relevant damage; and
(b) a right to bring the action,
(referred to in this section as the “date of knowledge”) falls after the date
on which the cause of action accrued.

(2) The period of limitation prescribed by section 4(1) in respect of

actions founded on tort shall not apply to an action to which this section
applies.

(3) An action to which this section applies shall not be brought after
the expiration of the period applicable in accordance with subsection (4).
 - 9 -

(4) That period is either―

(a) 6 years from the date on which the cause of action accrued;
or
(b) 3 years from the date of knowledge, if that period expires
later than the period mentioned in paragraph (a).

(5) In subsection (1) “the knowledge required for bringing an action

for damages in respect of the relevant damage” means knowledge―
(a) of such facts about the damage in respect of which damages
are claimed as would lead a reasonable person who had
suffered such damage to consider it sufficiently serious to
justify his instituting proceedings for damages against a
defendant who did not dispute liability and was able to
satisfy a judgment;
(b) that the damage was attributable in whole or in part to the
act or omission which is alleged to constitute negligence;
(c) …
(d) …

(6) …

(7) For the purposes of this section … a person’s knowledge includes

knowledge which he might reasonably have been expected to acquire―
(a) from facts observable or ascertainable by him; or
(b) from facts ascertainable by him with the help of appropriate
expert advice which it is reasonable for him to seek,
but a person shall not be taken by virtue of this subsection … to have
knowledge of a fact ascertainable only with the help of expert advice so
long as he has taken all reasonable steps to obtain (and, where appropriate,
to act on) that advice.”

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.

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).
 - 10 -

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”

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?

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.

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:

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

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

(iii) they knew or ought to have known that the damages and defects
pleaded might constitute a danger of physical injury to persons or
physical damage to properties in the vicinity of the bank building;
 - 11 -

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

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

(vi) the bank building suffered the damage pleaded;

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

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

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:

(1) By following Pirelli which focuses upon physical damage

to property as an ingredient of the cause of action: As
mentioned earlier, the House of Lords in Pirelli
considered itself bound by Cartledge v. Jopling, making it
indistinguishable in principle whether the claim was for
injury to the person or for damage to property (see Pirelli
at 14-D), thus in effect treating the claim as being an
extension of Donoghue v. Stevenson [1932] AC 562.

(2) By applying the principles of Hedley Byrne v. Heller &

Partners Ltd [1964] AC 465 as extended, in particular, in
Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145, to
 - 12 -

cover cases of people professing special skills

undertaking to render professional services upon which
the plaintiff relies to his detriment. The problem with
this line of approach, as will be explained later, is that it
involves a re-classification of actions for damages for
latent defects as ones for negligent mis-statement.

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:

“In the varied web of affairs, the law must abstract some consequences as
relevant, not perhaps on grounds of pure logic but simply for practical
reasons.”

Findlay J’s judgment

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
 - 13 -

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.

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:

“In July 1982, the granite cladding work was completed.

The view of the experts is that physical damage to the cladding system
started to occur within the first few years after 1982. From then, over the
years, the physical damage got worse until, at some uncertain time, risk of
injury to the public was unacceptable. There was a risk of whole panels
becoming dislodged. I accept this evidence. There is some evidence
that marks on the surface of the granite panels could be seen in 1984 and
1985, and one of these marks coincides in place with where damage was
later seen.

On the contemporaneous evidence, after completion of the building, all

was quiet until November 1989. In that month, there was a report by
Mr. Michael Tang of Hong Kong Land following a survey of the external
walls of the building.”

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”.
 - 14 -

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:

(i) A number of panels showed signs of compression cracking.

(ii) The problem might have been due to inadequate provision of

support at each floor level and a general lack of movement joints.

(iii) No panel was dangerous as such (from a cursory inspection) but a

detailed investigation was needed without delay.

(iv) The problem was not related to the Mass Transit Railway works in
the vicinity of the Bank building in the 1980s.

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.

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:

“The observed damage now generally comprises severe spalls (sometimes

sealed and sometimes untouched) where the edges of stones have spalled
within the vicinity of a restraint or gravity fixing. The greatest number of
defects exists at the compression joints both above and below the joint,
although not exclusively so. Pieces of stone as large as 230 mm. by
50mm. were noted as having separated from the parent stone and many
such separated pieces of stone are held in position only by mastic. In two
locations on the South-East corner of the building, two pieces of fractured
stone were removed … as being in imminent danger of falling free from
the building. In several locations, stones were found to have been
displaced or bowed from their installed positions by as much as 5mm.

The location of the bowed stones are between levels 4 to 5, and 7 to 8 on

the Westerly side of the South-Western column …. There is also some
evidence of bowing in some other places particularly on the same column
between levels 10 and 11 and on column 6. This latter bowing occurs at
the Northerly side of the Western flank column between levels 13 and 14
 - 15 -

and sufficiently to have caused vertical cracking of the stone and scaling of
the surface of the stone.”

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:

(i) The design failed to provide for the differential vertical movement
between the granite cladding and the reinforced concrete structure.

(ii) There were too few compression joints, and these were too narrow:
In particular the design failed to provide for compression joints of a
minimum width of 13 mm at every storey height in order to comply
with CP298:1972 (British Standard Code of Practice 298:1972
edition).

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:

“The evidence leads me to believe that it was not until about the middle of
1993 that 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. It is impossible to be
precise about when, on this basis, it can be said that the cause of action
accrued. It cannot be at the moment in time when the owner decides to
call in the expert. There must be a reasonable time gap to enable the
expert to examine the building and report his findings on the cause and
extent of the defects. It is only then that it can be said that what is
 - 16 -

suspected is verified, and this ‘marks the moment when the market value
of the building is depreciated, and therefore the moment when the
economic loss occurs’.”

The judge therefore concluded that the writ issued against

Palmer & Turner (25 May 1996) was within time.

The Court of Appeal

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”.
 - 17 -

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:

“ My Lords, I consider that it follows and that it should now be

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

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
 - 18 -

remedy in law should be available for such negligence.” This tortious

liability can coincide with liability founded upon contract.

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

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:

“By concentrating on physical damage as the cause of action rather

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

Evidently, the Judge below considered that the defects in the design
were such that physical damage was likely to be brought about. On this
basis, I consider that the point of time at which the Plaintiff suffered
economic loss by reason of the defective design was the date when it
acquired and paid for the building with the defective design. For the
purposes of this case I take that to be the date of practical completion
namely 7th March 1983.”
 - 19 -

The Court of Appeal’s approach to the law

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.

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:

“premises are defective only if they constitute a source of damage to the

person or property of those who are likely to come on to them or to find
themselves in their vicinity”.

This followed classic Donoghue v. Stevenson lines, confining

damages recoverable by the plaintiff to damage to the person or to
property.
 - 20 -

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.

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).

The notion that the discipline of law might have required the
court to have regard to the statutory scheme governing limitation periods
 - 21 -

for latent defects in buildings, in particular its historical development,

seems to have found little favour in the courts below.

In these circumstances it is necessary to go back to first

principles.

First principles

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
 - 22 -

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.

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:

“If the latent defect causes actual physical damage to the structure of the
house then I can see no reason in principle why such damage should not
give rise to a cause of action ….” (emphasis added).

Although Richmond P dissented on the facts, the above

statement of principle had the support of both Woodhouse and Cooke JJ.

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).

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
 - 23 -

(thereby excluding the case from Donoghue v. Stevenson principles).

This argument was rejected. At 417 Woodhouse J said:

“In the present case the claim is not for a purely economic loss. Instead,
the evidence demonstrates, first, that the defect referable to the foundations
caused actual physical damage to the building; and, second, that the
element of depreciation in the claim by [the plaintiffs] is an associated
effect of that damage.”

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:

“The cost of reasonably necessary remedial work, whether already incurred

or about to be incurred, should be recoverable, as should any depreciation
in the market value of the house property that has already taken place.
Working out some of the more detailed rules could well be a gradual
process, and not free from difficulty. But the present case does not seem
to me to give rise to any special difficulties in relation to questions of law
as to the duty of care and the damages … I do not think we should be
deterred by the spectre of problems in other cases from bringing this case
within the general principles of the law of negligence” (Emphasis added).

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:

“ To allow recovery for such damage to the house follows, in my

opinion, from normal principle. If classification is required, the relevant
damage is in my opinion material, physical damage, and what is
recoverable is the amount of expenditure necessary to restore the dwelling
to a condition in which it is no longer a danger to the health or safety of
persons occupying and possibly (depending on the circumstances)
expenses arising from necessary displacement.”
 - 24 -

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.

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
 - 25 -

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.

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.

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

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
 - 26 -

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.

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
 - 27 -

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?

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
 - 28 -

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.

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.
 - 29 -

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:

“It is difficult to see why, as a matter of principle, policy or common sense,

a negligent builder should be liable for ordinary physical injury caused to
any person or to other property by reason of the collapse of a building by
reason of the inadequacy of the foundations but be not liable to the owner
of the building for the cost of remedial work necessary to remedy that
inadequacy and to avert such damage. Indeed, there is obvious force in
the view expressed by Lord Denning MR in Dutton v Bognor Regis Urban
District Council that, as a rational basis for differentiating between
circumstances of liability and circumstances of no liability, such a
distinction is an ‘impossible’ one.”

Brennan J, at 391, said that it was artificial to classify defects in

a building as pure economic loss. He went on:

“Defects in a building are physical defects and the cost of their rectification
is consequential on their existence….”

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.
 - 30 -

The Court of Appeal’s difficulty

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.

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.

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.

Here, the Court of Appeal was handicapped in that the trial

judge did not consider it necessary to make detailed findings of physical
 - 31 -

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”.

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.

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.

Rogers JA said:

“ It was Mr. Kinnear’s evidence for example, in Appendix F of his

report that between 1985 and 1990, there would have been no discernible
increase in damage above that which was derived from the initial
shortening of the building caused by shrinkage and creep in the first two
years. As a graph which he has exhibited in Appendix F shows, there
does appear to have been some damage to the cladding in those early years.
Indeed it is evident from Mr. Kinnear’s oral evidence that his view was that
if any person had inspected the building with a view to purchasing it, at
least about 1986 there must have been spalls in the cladding which would
 - 32 -

have been sufficient to alert a potential purchaser to have asked for

assurances of some kind and probably required an expert to look at the
building and try to explain the defects. In view of the knowledge
available at the time, it might have been difficult to have found the
appropriate expert but nevertheless his evidence was supported by other
experts including in particular Mr. Shillinglaw.” (Emphasis added).

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:

“ In any event, it seems to me, on Mr. Kinnear’s evidence which was

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

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
 - 33 -

essential finding. It marks the time when the cause of action first
accrued on Pirelli principles.

Alternative dates

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

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
 - 34 -

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.

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
 - 35 -

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

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

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
 - 36 -

“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.

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.

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.
 - 37 -

CP 298

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?

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:

“The damage to the cladding panels appears to be the result of a

combination of four design and construction problems. These are:
- the thickness of the cladding panels
- the limited provision of compression joints
- the rigidity of the fixing system
- the fixing of the cladding prior to completion of
construction of the structure

It seems possible that the cladding panels would not have experienced the
observed degree of cracking and distress if only one or two of the
variations from the code listed above were present. However, it seems
that the combination of all four variations placed too severe a strain on the
 - 38 -

panels adjacent the compression joints. The provision for movement

could not accommodate the movement which was generated and the stones
were not strong enough to absorb the stresses so induced.”

Dr Shillinglaw reached essentially the same conclusion. In his

report he said:

“My opinion, taking into account my calculations and those produced by

the British Research Establishment, is that the cladding and the fixings
would have been able to withstand the movements in building and the solar
gains but due to the close follow on after the concrete pours, the cladding
has been unable to cope with the excessive shrinkage of the concrete that
has resulted.

Building movement has occurred due to concrete shrinkage as the moisture

in the concrete has slowly evaporated. As the concrete structure has been
loaded the building has shrunk.”

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.

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:
“I think the key thing I would like to highlight is at a design level this is an
adequate design. I am not suggesting it was a brilliant design, and nor am
I suggesting that it was easy, necessarily, to supervise on site. But
nevertheless it is a relatively simple approach, and the criticisms that
appear to have been given to it are really ones of execution, rather than
conception, rather supervision than design.”
 - 39 -

The judge however rejected his evidence in this regard.

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.

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.

As set out in Mr Kinnear’s report of 18 March 1997 the reasons

for the ultimate failure of the cladding were:

(a) The differential movements between the cladding and the structure
due to drying shrinkage and creep;

(b) Thermal expansion and contraction of stone due to diurnal and

seasonal changes in temperature;

(c) Fatigue in the stone itself, possibly accentuated in some cases by

the cutting and drilling operations inducing minor cracks which
weakened the stone.
 - 40 -

From this Mr Kinnear reached the following conclusion:

“I am able to conclude … that there has been a progression from relatively

minor ‘chipping’ of stone, referred to in the earliest report at around 1989,
to the very much more serious deep spalls and bowing of panels seen
during my survey in November 1995 and which continues now to extend.
The earliest damage seen in 1989 is consistent with the 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. These items of
damage are relatively few in number … and not severe …. It is
improbable that the defects would have signalled in 1989, even to an
expert such an extension of damage as would subsequently demand
replacement of the entire cladding.”

“Injury beyond what can be regarded as negligible”

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.

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
 - 41 -

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”.

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”.

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”.

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”.

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.
 - 42 -

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

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.

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.

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
 - 43 -

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:

“ It must be correct to say that the burden is initially on the defendant

to plead limitation, but thereafter it is for the plaintiff to show when time
began to run, either by reference to the date when the cause of action
accrued, or, if appropriate, by reference to a disability of his or to fraud,
concealment or mistake. As a practical and tactical point, if the plaintiff
is able to bring evidence establishing prima facie that the limitation period
has not yet expired, then it will be necessary for the defendant to rebut this
if he is to succeed on the limitation point, but the correct formulation is
nevertheless to say that the burden of proof remains on the plaintiff.
Indeed this is well illustrated by the decision of the Court of Appeal in
London Congregational Union v. Harriss & Harriss [1988] 1 AER 15
where it was ultimately impossible to establish clearly when the cause of
action accrued, and the defendants succeeded on that ground.”

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?

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:

“Unless the defect is very gross, it may never lead to any damage at all to
the building.”

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.
 - 44 -

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.

In Pirelli the argument based on Hedley Byrne was expressly

rejected. At p.18-G Lord Fraser said:

“Counsel for the appellants submitted that the fault of his clients in
advising on the design of the chimney was analogous to that of a solicitor
who gives negligent advice on law, which results in the client suffering
damage and a right of action accruing when the client acts on the advice ….
It is not necessary for the present purpose to decide whether that
submission is well founded, but as at present advised, I do not think it is.”

Lord Keith’s dictum: A new trend?

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):

“ In Pirelli General Cable Works Ltd. v. Oscar Faber & Partners

[1983] 2 A.C. 1 it was held that the cause of action in tort against
consulting engineers who, had negligently approved a defective design for
a chimney arose when damage to the chimney caused by the defective
design first occurred, not when the damage was discovered or with
reasonable diligence might have been discovered. The defendants there
had in relation to the design been in contractual relations with the plaintiffs,
but it was common ground that a claim in contract was time-barred. If
the plaintiffs had happened to discover the defect before any damage had
occurred there would seem to be no good reason for holding that they
would not have had a cause of action in tort at that stage, without having to
wait until some damage had occurred. They would have suffered
economic loss through having a defective chimney upon which they
required to expend money for the purpose of removing the defect. It
would seem that in a case such as Pirelli, where the tortious liability arose
out of a contractual relationship with professional people, the duty
extended to take reasonable care not to cause economic loss to the client by
the advice given. The plaintiffs built the chimney as they did in reliance
on that advice. The case would accordingly fall within the principle of
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465.”
 - 45 -

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.

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.”

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)
 - 46 -

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):

“the cause of action accrues when the cracks become so bad, or the defects
so obvious, that any reasonable homeowner would call in an expert.
Since the defects would then be obvious to a potential buyer, or his expert,
that marks the moment when the market value of the building is
depreciated, and therefore the moment when the economic loss occurs.
Their Lordships do not think it is possible to define the moment more
accurately. The measure of the loss will then be the cost of repairs, if it is
reasonable to repair, or the depreciation in the market value if it is not: see
Ruxley Electronics and Construction Ltd. v. Forsyth [1996] 1 A.C. 344.”
 - 47 -

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

These are powerful submissions, but are they sound in the

context of Hong Kong’s statutory scheme for the limitation of actions?

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

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)
 - 48 -

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.

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:

(i) The time when the Bank relied upon the professional
services rendered by Palmer & Turner in relation to the
design: What Mr Thomas calls an action for “modern
negligence without physical damage of the Hedley Byrne
kind”;

(ii) The time when the physical damage first occurred;

following Pirelli and Ketteman;

(iii) The time when the physical damage was discovered:

following Invercargill.

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
 - 49 -

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.

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.

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:

“But the mere fact that an enactment shows that Parliament must have
thought that the law was one thing does not preclude the courts from
deciding that the law was in fact something different.”
 - 50 -

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?

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

Pirelli.

Invercargill

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.

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
 - 51 -

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?

No such problem faces us here.

The way forward

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.
 - 52 -

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.

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.

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.

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
 - 53 -

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.

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.
 - 54 -

Conclusions regarding case against Palmer & Turner

My conclusions regarding the case against Palmer & Turner

partners are these:

(1) On the facts of the case, physical damage in a real and

substantial sense, giving rise to quantifiable pecuniary
loss, first occurred about 1985. The Bank failed to show
on the evidence that it was after June 1985. Accordingly,
the Bank’s cause of action was statute-barred on 1 July
1991 when s.31 of the Limitation Ordinance came into
effect. The writ issued on 25 May 1996 was far too late.

(2) The Court of Appeal erred in concluding that the cause of

action accrued, pursuant to s.4(1)(a), 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).
This erroneously puts the time when the cause of action
accrued as at the end of 1982.

(3) The principle established in Pirelli is so deeply engrained

in our law that it cannot be brushed aside; that principle
stands at the heart of the statutory scheme for dealing
with latent damage claims. It is consistent with
principle governing claims in negligence. The
Invercargill approach, apt for New Zealand, is
inconsistent with the Hong Kong statutory scheme.
There is no justification for adopting that as the
governing principle in latent damage claims in Hong
Kong.

(4) On Pirelli principles, the Bank fails. The Court of

Appeal’s judgment should be affirmed, albeit on different
grounds.

Bank’s claim against TW in tort

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
 - 55 -

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

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:

“I am left in no doubt at all that under the contract the parties contemplated
that TW would be responsible for designing the system of fixing the
granite panels to the concrete, and that this system included making proper
allowance for movement.”

There is no challenge to this finding.

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: see
Henderson v. Merritt Syndicates Ltd. The judge also found in favour of
the Bank on this point.

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

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
 - 56 -

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.

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.

As Lord Slynn of Hadley said in Wong Mee Wan v. Kwan Kin

Travel Services Ltd [1995] 3 HKC 505 at 510:
“There are of course many contracts under which a person agrees to supply
services when he may arrange for his obligations to be performed by others,
and where it is indeed contemplated that he will do so …. The fact that
the supplier of services may under the contract arrange for some or all of
them to be performed by others does not absolve the supplier from his
contractual obligation. He may be liable if the service is performed
without the exercise of due care and skill on the part of the subcontractor
just as he would be liable if the subcontractor failed to provide the service
or failed to provide it in accordance with the terms of the contract ….”

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.

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
 - 57 -

against TW was time-barred when the writ against TW was issued in June
1994.

Claim against TW on basis of continuing guarantee

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

In my judgment the Bank’s appeal against both Palmer &

Turner and TW must be dismissed, with costs.

Mr Justice Ching PJ:

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
 - 58 -

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.

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,

“The successful Tenderer will be expected to guarantee the fixing for the
life of the building bearing in mind the typhoon conditions in Hong Kong.”

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.

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
 - 59 -

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.

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,

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

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

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

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

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

(vi) the bank building suffered the damage pleaded;

(vii) Palmer & Turner breached its duty of care to the Bank to produce
or procure the design of a fixing system for the cladding that
provided adequately for the differential movement between the
 - 60 -

cladding and the reinforced concrete structure of the Building; and

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

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.

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,

“The following actions shall not be brought after the expiration of 6 years
from the date on which the cause of action accrued, that is to say –
(a) actions founded on simple contract or on tort.”

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
 - 61 -

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.

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.

In the Court of First Instance the Judge held that

“The limitation point is a defence and it is for the defendants to establish

it.”

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
 - 62 -

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.

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,

“The Courts have expressed at least three differing reasons supporting the
existence of statutes of limitation, namely (1) that long dormant claims
have more of cruelty than justice in them; (2) that a defendant might have
lost the evidence to disprove a stale claim; and (3) that persons with good
causes of action should pursue them with reasonable diligence.”

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,

“The difficulty of obtaining satisfactory insurance cover in respect of latent

damage was also mentioned by many commentators and particular concern
was voiced about the problems faced by retired professional people who
felt impelled to keep up expensive insurance policies long after their
retirement. A number of the submissions also mentioned the practical
problems, especially in terms of evidence, of defending an action many
years after the events giving rise to it and some suggested that these had
led to a growing number of insubstantial claims.”

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,

“In the great majority of cases these rules work well, because the claimant
knows of his injury or damage at about the time he suffers it, and if he does
 - 63 -

not take action within the generous time limits provided he has only
himself to blame.”

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.

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
 - 64 -

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,

“It would be a pity if a desire to be indulgent to plaintiffs led the court to

be unfair to defendants.”

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.

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
 - 65 -

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,

“A house that has received a shock may not at once shew all the damage
done to it, but it is damaged none the less then to the extent that it is
damaged, and the fact that the damage only manifests itself later on by
stages does not alter the fact that the damage is there; and so of the more
complex mechanism of the human frame, the damage is done in a railway
accident, the whole machinery is injured, though it may escape the eye or
even the consciousness of the sufferer at the time; the later stages of
suffering are but the manifestations of the original damage done, and
consequent upon the injury originally sustained.”

The logic in this passage appears to be impeccable.

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,

“The cause of action accrued when it” that is to say the damage “reached a
stage, whether then known or unknown, at which a judge could properly
give damages for the harm that had been done.”

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
 - 66 -

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.

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,

“But the present question depends on statute, the Limitation Act, 1939,
and section 26 of that Act appears to me to make it impossible to reach the
result which I have indicated. That section makes special provisions
where fraud or mistake is involved: it provides that time shall not begin to
run until the fraud has been or could with reasonable diligence have been
discovered. Fraud here has been given a wide interpretation, but
obviously it could not be extended to cover this case. The necessary
implication from that section is that, where fraud or mistake is not
involved, time begins to run whether or not the damage could be
discovered.”
 - 67 -

Lord Evershed at page 773 said,

“To postpone the date in such a case as the present would, in my opinion,
necessarily require the insertion of some words qualifying the statutory
formula. My Lords, the well-established principles of the interpretation
of statutes by the courts of this country forbid such an insertion; and more
particularly so having regard to the express provision in section 26 of the
same Act for postponing the date of the accrual of the cause of action in
cases involving fraud or mistake to the date when the fraud or mistake was,
or could with reasonable diligence, have been discovered.”

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.

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,

“Nor can his knowledge of the state of his lungs be the deciding factor. It
would be impossible to hold that while the X-ray photographs are being
taken he cannot yet have suffered any damage to his body, but that
immediately the result of them is told to him, he has from that moment
suffered damage.”

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
 - 68 -

Letters 1018, that

“… having a cause of action seems to me a concept which can exist

independently of the existence of all the premises necessary to pursue it,
such as the necessary knowledge, or indeed the necessary finance.”

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

“(a) the date on which the cause of action accrued; or

(b) the date (if later) of the plaintiff’s knowledge.”

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
 - 69 -

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).

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,

“Although Cartledge v. Jopling …was a case of personal injuries, the

respondents did not dispute that the principle of the decision was
applicable in the present case. In that respect the respondents were in my
opinion exercising a wise discretion because the decision in Cartledge
depended mainly on the necessary implication from section 26 of the Act
of 1939, and section 26 is not limited to claims for personal injuries ….

Cartledge v. Jopling … was decided by your Lordships’ House on

January 16, 1963. Later the same year Parliament passed the Limitation
Act 1963, which received the royal assent on July 31, 1963, and was
evidently passed to deal with the mischief disclosed by Cartledge. It
extended the time limit for raising of actions for damages where material
facts of a decisive character were outside the knowledge of the plaintiff
until after the action would normally have been time barred, but it applied
only to actions for damages consisting of or including personal injuries.
It must, therefore, be taken that Parliament deliberately left the law
unchanged so far as actions for damages of other sorts was concerned.”
 - 70 -

This resulted in further legislation in England which finds its equivalent

in section 31 of the Ordinance.

That section bears the heading,

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

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,

“… where the earliest date on which the plaintiff … first had both –
(a) the knowledge required for bringing an action for damages in
respect of the relevant damage; and
(b) a right to bring such an action
… falls after the date on which the cause of action accrued.”

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

“(a) 6 years from the date on which the cause of action accrued; or
(b) 3 years from the date of knowledge, if that period expires later than
the period mentioned in paragraph (a).”
 - 71 -

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.

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
 - 72 -

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,

“These provisions do show that Parliament (or the draftsman) must have
thought the law was that compensation was assessable on the basis of the
value as at the date of the notice to treat. But the mere fact that an
enactment shows that Parliament must have thought that the law was one
thing does not preclude the courts from deciding that the law was in fact
something different …. No doubt the position would be different if the
provisions of the enactment were such that they were only workable if the
law was as Parliament supposed it to be. But, in my view, all that can be
said here is that these enactments would have a narrower scope if the law
was found to be that compensation must be assessed at a later date than
that of the notice to treat. I do not think that that is sufficient to preclude
your Lordships from re-examining the whole matter.” (Emphasis
supplied)

I am unable to see that the provisions of the Ordinance already mentioned

fall within these words.

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
 - 73 -

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,

“It is otherwise if the authority in England is that of the House of Lords.”

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,
“Different considerations, in their Lordships’ view, apply to decisions of
the House of Lords on the interpretation of recent legislation that is
common to Hong Kong and England. Here there is no question of
divergent development of the law. The legislature in Hong Kong has
chosen to develop that branch of the law on the same lines as it has been
 - 74 -

developed in England, and, for that purpose, to adopt the same legislation
as is in force in England and falls to be interpreted according to the English
canons of construction. What their Lordships have already said about the
common membership of the Judicial Committee of the Privy Council and
the Appellate Committee of the House of Lords applies a fortiori to the
decisions of the House of Lords on the interpretation of recent English
statutes that have been adopted as the Law of Hong Kong. Since the
House of Lords as such is not a constituent part of the judicial system of
Hong Kong it may be that in juristic theory it would be more correct to say
that the authority of its decision on any question of law, even the
interpretation of recent common legislation, can be persuasive only : but
looked at realistically its decisions on such a question will have the same
practical effect as if they were strictly binding, and courts in Hong Kong
would be well advised to treat them as being so.”

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.

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
 - 75 -

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.

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 regrettable that there should be any divergence between English and
New Zealand Law on a point of fundamental principle. Whether the
Pirelli case … should still be regarded as good law in England is not for
their Lordships to say. What is clear is that it is not good law in New
Zealand.”

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
 - 76 -

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.

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,

“… the cause of action accrues when the cracks become so bad, or the
defects so obvious, that any reasonable homeowner would call in an expert.
Since the defects would then be so obvious to a potential buyer, or his
expert, that marks the moment when the economic loss occurs. Their
Lordships do not think it is possible to define the moment more accurately.
The measure of the loss will then be the cost of repairs if it is reasonable to
repair, or the depreciation in the market value if it is not; see Ruxley
Electronics and Construction Ltd v. Forsyth [1996] 1 AC 344.

This approach avoids almost all the practical and theoretical

difficulties to which the academic commentators have drawn attention, and
which led to the rejection of the Pirelli decision … by the Supreme Court
of Canada in the Kamloops case, 10 D.L.R. (4th) 641. The approach is
consistent with the underlying principle that a cause of action accrues
when, but not before, all the elements necessary to support the plaintiff’s
claim are in existence. For in the case of a latent defect in a building the
element of loss or damage which is necessary to support a claim for
economic loss in tort does not exist so long as the market value of the
house is unaffected. Whether or not it is right to describe an
undiscoverable crack as damage, it clearly cannot affect the value of the
building on the market. The existence of such a crack is thus irrelevant to
the cause of action ….”

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
 - 77 -

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.

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
 - 78 -

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
 - 79 -

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.

Mr Thomas urged upon us Article 8 of the Basic Law which

reads,

“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, except for any that contravene this law, and subject to any
amendment by the legislature of the Hong Kong Special Administrative
Region.”

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.

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
 - 80 -

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.

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
 - 81 -

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,

“That is a very important decision, but I do not think that it has any direct
bearing on this case. That decision may encourage us to develop existing
lines of authority, but it cannot entitle us to disregard them. Apart
altogether from authority, I would think that the law must treat negligent
words differently from negligent acts.”

Lord Morris at page 496, however, said,

“In logic I can see no essential reason for distinguishing injury which is
caused by a reliance upon words from injury which is caused by a reliance
upon the safety of the staging to a ship or by a reliance upon the safety for
use of the contents of a bottle of hair wash or a bottle of some consumable
liquid.”

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

“… a negligent, though honest, misrepresentation, spoken or written, may

give rise to an action for damages for financial loss caused thereby, apart
from any contract or fiduciary relationship, since the law will imply a duty
of care when a party seeking information from a party possessed of a
special skill trusts him to exercise due care, and the party knew or ought to
have known that reliance was being placed on his skill and judgment.”

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.
 - 82 -

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,

“ I think that the main conclusions to be drawn from the cases is that
whether a cause of action is for personal or physical damage or for
financial or other economic loss it arises when damage is suffered and not
when the damage is discovered. When damage is suffered is always a
 - 83 -

question of fact.

In this case if the 1980-81 underpinning was, as I have to assume,

completely useless and did not even help to support part of the house, then
I think the plaintiffs’ cause of action against the individual defendants must
at the very least have arisen when the second plaintiffs provided the first
plaintiffs with the money to pay for the works and the first plaintiffs paid
the first and/or second defendants for them. It is possible that the
plaintiffs’ cause of action accrued at an earlier date, when the first plaintiffs
entered into a contract with the first defendants for the works to be carried
out, but probably changes could have been arranged to the contract or
improvements made in the design of the works almost up to the time when
the works were completed.”

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.

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,
 - 84 -

“… it seems to me that, having regard to the nature of the duty which is

alleged to have been breached in this case, in effect, to see that the drains
were properly designed and built, the damage from any breach of that duty
must have occurred at the time when the drains were improperly built,
because the plaintiff at that time was landed with property which had bad
drains when he ought to have been provided with property which had good
drains, and the damage, accordingly, occurred on that date. What
happened later, in 1961, when the settlement took place was merely a
consequence of the damage resulting from the original breach which
occurred when bad drains were installed on the plaintiff’s property.”

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 and Hedley Byrne
were cited in argument. Donoghue v. Stevenson was not cited.

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,

“In Hedley Byrne … which marked a fresh development in the law of

negligence, the conduct in question was careless words, not careless deeds.
Lord Atkin’s aphorism, if it were of universal application, would have
sufficed to dispose of that case, apart from the express disclaimer of
liability. But your Lordships were unanimous in holding that the
difference in the characteristics of the conduct in the two cases prevented
the propositions of law in Donoghue v. Stevenson from being directly
applicable. Your Lordships accordingly proceeded to analyse the
previous decisions in which conduct complained of had been careless
words, from which you induced a proposition of law about liability for
damage caused by careless word; which differs from the proposition of law
in Donoghue v. Stevenson about liability for damage caused by careless
deeds.”

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
 - 85 -

cases of pure economic loss.

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
in Sparham-Souter v. Town and Country Developments (Essex) Ltd [1976]
1 QB 858 and in Murphy the decision in Dutton was held to be wrong.

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
 - 86 -

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,

“The cause of action accrues, not at the time of the negligent making or
passing of the foundations, nor at the time when the latest owner bought
the house, but at the time when the house began to sink and the cracks
appeared. That was the first time that any damage was sustained.”

Later at page 868, he said,

“… when building work is badly done … the cause of action does not
accrue, and time does not begin to run, until such time as the plaintiff
discovers that it has done damage, or ought, with reasonable diligence, to
have discovered it.”

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
 - 87 -

damage and its discovery or discoverability.

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,

“There is no proper analogy between this situation and the type of situation
exemplified in Cartledge v. Jopling … where a plaintiff due to the
negligence of the defendants suffers physical bodily injury which at the
outset and for many years thereafter may be clinically unobservable. In
those circumstances clearly damage is done to the plaintiff and the cause of
action accrues from the moment of the first injury albeit undetected and
undetectable. That is not so where the negligence has caused
unobservable damage not to the plaintiff’s body but to his house. He can
get rid of his house before any damage is suffered. Not so with his body.”

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

“My Lords, I find myself with the utmost respect unable to agree with that
argument. It seems to me that there is a true analogy between the plaintiff
whose body has, unknown to him, suffered injury by inhaling particles of
dust, and a plaintiff whose house has unknown to him sustained injury
because it was built with inadequate foundations or of unsuitable materials.
Just as the owner of the house may sell the house before the damage is
discovered, and may suffer no financial loss, so the man with the injured
body may die before pneumoconiosis becomes apparent, and he also may
suffer no financial loss. But in both cases they have a damaged article
when, but for the defendant’s negligence, they would have had a sound
one.”

A cause of action factually exists or it does not. The evidence by which

those facts are to be proved is quite another matter.

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
 - 88 -

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,

“When does the cause of action arise? We can leave aside cases of
personal injury or damage to other property as presenting no difficulty. It
is only the damage for the house which requires consideration. In my
respectful opinion the Court of Appeal was right when, in
Sparham-Souter … it abjured the view that the cause of action arose
immediately upon delivery, i.e., conveyance of the defective house. It can
only arise when the state of the building is such that there is present or
imminent danger to the health or safety of persons occupying it ….”

At page 770, Lord Salmon said,

“If it could be proved that the building suffered damage prior to February
1966 which endangered the safety of its occupants or visitors
Mrs. O’Shea’s claim would be statute-barred. It seems to me, however,
that since in fact no damage manifested itself until February 1970 it may
be very difficult to prove that damage had in fact occurred four years
previously. In the unlikely event of the defendants overcoming this
difficulty, the fact that the damage went undetected for four years would
not prevent the statute running from the date when the damage first
occurred : see Cartledge v. E. Jopling & Sons Ltd. [1963] A.C. 758. In
such circumstances Mrs. O’Shea could not have recovered damages
because her cause of action would have accrued more than six years before
the issue of the writ. Section 2(1) of the Limitation Act 1939 bars any
action in tort after the expiration of six years (amended by the Law Reform
(Limitation of Actions, etc.) Act 1954 to three years in actions for damages
for personal injuries) from the date when the cause of action accrued ….
I do not think that if and when this action comes to be tried, the defendants
should be prevented from attempting to prove that the claim by
Mrs. O’Shea is statute-barred. A building may be able to stand
undamaged on defective foundations for years and then perhaps eight years
or so later damage may occur. Whether it is possible to prove that
damage to the building had occurred four years before it manifested itself
is another matter, but it can only be decided by evidence.”
 - 89 -

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.

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,

“… where the relationship between the parties was sufficiently close, the
scope of the duty of care in delict or tort owed by a person doing work was
not limited to a duty to avoid causing foreseeable harm to persons or to
property other than the subject-matter of the work by negligent acts or
omissions, but extended to a duty to avoid causing pure economic loss
consequential on defects in the work and (per Lord Fraser of Tullybelton,
Lord Russell of Killowen and Lord Roskill) to avoid defects in the work
itself ….”

Put shortly, Hedley Byrne was applied.

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,

“I would hold that the cause of action accrued … when damage, in the
form of cracks near the top of the chimney, must have come into existence.
I avoid saying that cracks ‘appeared’ because that might seem to imply that
they had been observed at that time ….”

This may be contrasted with the passage cited above from Lord
Denning’s judgment in Sparham-Souter and with the decision in
 - 90 -

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.

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,

“The argument was clearly rejected in the speech of Lord Fraser of

Tullybelton concurred in by all the others of their Lordships who
participated in the decision. At p.16 he expressed the opinion that a latent
defect in a building does not give rise to a cause of action until damage
occurs. In the present case there can be no doubt that the defects in the
houses were latent. No one knew of their existence until damage
occurred in the summer of 1976. This branch of the argument for the
architects is, in my opinion, inconsistent with the decision in the Pirelli
case, and must be rejected.”
 - 91 -

This reaffirmed the principle laid down in Pirelli.

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,

“Liability of the builders in tort, however, for the plaintiffs’ loss of the
value of the house is one which I would now question for reasons I will
later explain. My own short extempore judgment, which treats the issue
of the builder’s liability in damages and the fundamental question raised by
Stamp L.J. in Dutton v. Bognor Regis Urban District Council … as settled
by the speech of Lord Wilberforce in Anns v. Merton London Borough
Council … was, I now think, unsound.

My Lords, I do not intend to embark on the daunting task of

reviewing the wealth of other, mostly later, authority which bears, directly
or indirectly, on the question whether the cost of making good defective
plaster in the instant case is irrecoverable as economic loss, which seems to
 - 92 -

me to be the most important question for determination in the present

appeal. My abstention may seem pusillanimous, but it stems from a
recognition that the authorities, as it seems to me, speak with such an
uncertain voice that, no matter how searching the analysis to which they
are subject, they yield no clear and conclusive answer. It is more
profitable, I believe, to examine the issue in the light of first principles.”

He went on to cite two passages from the dissenting speech of Lord

Brandon in Junior Books including,

“It has further, until the present case, never been doubted, so far as I know,
that the relevant property for the purpose of the wider principle on which
the decision in Donoghue v. Stevenson was based, was property other than
the very property which gave rise to the danger of physical damage
concerned.”

The second passage included the following,

“… there are two important considerations which ought to limit the scope
of the duty of care which it is common ground was owed by the appellants
to the respondents on the assumed facts of the present case. The first
consideration is that, in Donoghue v. Stevenson itself and in all the
numerous cases in which the principle of that decision has been applied to
different but analogous factual situations, it has always been either stated
expressly, or taken for granted, that an essential ingredient in the cause of
action relied on was the existence of danger, or the threat of danger, of
physical damage to persons or their property, excluding for this purpose the
very piece of property from the defective condition of which such danger,
or threat of danger, arises.”

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

“If the same principle applies in the field of real property to the liability of
the builder of a permanent structure which is dangerously defective, that
liability can only arise if the defect remains hidden until the defective
structure causes personal injury or damage to property other than the
structure itself. If the defect is discovered before any damage is done, the
loss sustained by the owner of the structure, who has to repair or demolish
it to avoid a potential source of danger to third parties, would seem to be
purely economic …. I do not find it necessary for the purpose of deciding
the present appeal to express any concluded view as to how far, if at all, the
ratio decidendi of Anns v. Merton London Borough Council … involves a
departure from this principle establishing a new cause of action in
negligence against a builder when the only damage alleged to have been
suffered by the plaintiff is a discovery of a defect in the very structure
which the builder erected.”
 - 93 -

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

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,

“… while the principle in Donoghue v. Stevenson … applied to impose a

duty on the builder of a house to take reasonable care to avoid injury or
damage, through defects in its construction, to the persons or property of
those whom he ought to have in contemplation as likely to suffer such
injury on damage, that principle as stated extended only to latent defects;
that, where a defect was discovered before any injury to person or health or
damage to property other than the defective house itself had been done, the
expense incurred by a subsequent purchaser of the house in putting the
defect right was pure economic loss ….”

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
 - 94 -

the object itself. Lord Bridge at page 478/479 said,

“Here, once the first cracks appear, the structure as a whole is seen to be
defective and the nature of the defect is known. Even if, contrary to my
view, the initial damage could be regarded as damage to other property
caused by a latent defect, once the defect is known the situation of the
building owner is analogous to that of the car owner who discovers that the
car has faulty brakes. He may have a house which, until repairs are
effected, is unfit for habitation, but, subject to the reservation I have
expressed with respect to ruinous buildings at or near a boundary of the
owner’s property, the building no longer represents a source of danger and
as it deteriorates will only damage itself.”

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,

“… if a building stands so close to the boundary of the building owner’s

land that after discovery of the dangerous defect it remains a potential
source of injury to persons or property on neighbouring land or on the
highway, the building owner ought, in principle, to be entitled to recover in
tort from the negligent builder the cost of obviating the danger, whether by
repair or by demolition, so far as that cost is necessarily incurred in order
to protect himself from potential liability to third parties.”

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.
 - 95 -

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,

“But they were certainly not purporting to deal with such issues as, for
instance, how far economic loss alone, without some physical or material
damage to support it, can afford a cause of action in negligence by act.
See Morrison Steamship Co. Ltd v. Greystoke Castle (Cargo Owners),
where it was held that it could do so.”

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,

“Thus an unreal search sometimes goes on to find some physical damage

as the key which alone unlocks the door to the funds of local authorities
and their insurers.”

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

“Finally, despite the categorisation of the damage as ‘material, physical

damage’ (Anns, per Lord Wilberforce, at p.759) it is, I think, incontestable
on analysis that what the plaintiffs suffered was pure pecuniary loss and
nothing more. If one asks, ‘what were the damages to be awarded for?’
Clearly they were not to be awarded for injury to the health or person of
the plaintiffs for they had suffered none. But equally clearly, although the
‘damage’ was described, both in the Court of Appeal in Dutton and in this
House in Anns, as physical or material damage, this simply does not
 - 96 -

withstand analysis. To begin with, it makes no sort of sense to accord a

remedy where the defective nature of the structure has manifested itself by
some physical symptom, such as a crack or fractured pipe, but to deny it
where the defect has been brought to light by, for instance, a structural
survey in connection with a proposed sale. Moreover, the imminent
danger to health or safety which was said to be the essential ground for the
action was not the result of the physical manifestations which had appeared
but of the inherently defective nature of the structure which they revealed.
They were merely the outward signs of a deterioration resulting from the
inherently defective condition with which the building had been brought
into being from its inception and cannot properly be described as damage
cause to the building in any accepted use of the word ‘damage’.”

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,

“The case has always been regarded as important in that it established that,
in certain circumstances, a duty of care may exist in respect of words as
well as deeds, and further that liability may arise in negligence in respect
of pure economic loss which is not parasitic upon physical damage.”

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.

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
 - 97 -

the case of D.W. Moore where solicitors negligently drafted the covenants
in an agreement. Bingham LJ at page 280 said,

“…. It is common ground, on the assumption that plaintiffs’ pleaded case is

correct, that the defendants were in breach of contract when they
negligently advised and settled documents …. A cause of action then
arose. Suppose, per impossibile, that the plaintiffs had sued at once and
before the later difficulties … arose. They would have been bound to
succeed. If of opinion that the plaintiffs had suffered no damage, the
judge would have awarded them nominal damages. But it seems to me
plain that the judge would not have done that on these facts. He would
have assessed as best he could on the available evidence the loss fairly and
reasonably flowing in the usual course of things from the defendants’
breach of contract, reaching a figure that may have been large or small but
would not have been nominal …. If, in a contractual claim for negligence
the court would have awarded other than nominal damages, I do not see
how it can be said that an action in tort based on the same negligence
would have been bound to fail for want of any damage as an essential
ingredient of the cause of action."

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.

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
 - 98 -

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.
 - 99 -

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.

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.

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
 - 100 -

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.

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
 - 101 -

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.

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

(1) The burden of bringing itself within the limitation period

was upon the bank and it failed to discharge that burden.
 - 102 -

(2) The cause of action was for economic loss but in default
of clear evidence as to when that economic loss occurred
the occurrence of physical damage may be taken as the
date of the accrual of that cause. On that, the Bank also
failed.

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:

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.

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
 - 103 -

(“BEA”).

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”.

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.

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.

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
 - 104 -

against them in tort is time-barred.

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.

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.
 - 105 -

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

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:

(1) Is BEA entitled to succeed against TW, the P & T

partners, both or neither?

(2) If both TW and the P & T partners are liable, what is the
position in regard to contribution as between themselves?

The cladding

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.
 - 106 -

Mr Ragaglini

The facts found by the judge included the following:

(1) Although TW was the cladding sub-contractor, it did not

have the expertise to design a fixing system for the
building’s cladding. P & T knew this. And P & T’s
knowledge of this was to be imputed to BEA for which it
was the agent for such purposes.

(2) The fixing system was in fact designed by an Italian

consultant architect, Mr Paolo Ragaglini, who was
engaged by TW as an independent contractor. P & T
knew that it was Mr Ragaglini who designed the fixing
system. And P & T’s knowledge of this was to be
imputed to BEA for which it was the agent for such
purposes.

CONTINUING GUARANTEE BY TW?

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?

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.
 - 107 -

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”.

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.

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.

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
 - 108 -

negligence.

TORTIOUS LIABILITY ON TW’s PART?

The second basis on which BEA claims against TW is, as I have

said, tortious liability.

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.

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.

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.
 - 109 -

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.

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.

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.

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.
 - 110 -

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

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

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

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?
 - 111 -

Section 31 provides that:

“ (1) This section applies to any action for damages for

negligence, other than one to which section 27 applies, where the earliest
date on which the plaintiff or any person in whom the cause of action was
vested before him first had both 
(a) the knowledge required for bringing an action for
damages in respect of the relevant damage; and
(b) a right to bring such an action,
(referred to in this section as the “date of knowledge”) falls after the date
on which the cause of action accrued.

(2) The period of limitation prescribed by section 4(1) in

respect of actions founded on tort shall not apply to an action to which this
section applies.

(3) An action to which this section applies shall not be brought

after the expiration of the period applicable in accordance with subsection
(4).

(4) That period is either 

(a) 6 years from the date on which the cause of action
accrued; or
(b) 3 years from the date of knowledge, if that period
expires later than the period mentioned in paragraph
(a).

(5) In subsection (1) “the knowledge required for bringing an

action for damages in respect of the relevant damage” means knowledge

(a) of such facts about the damage in respect of which
damages are claimed as would lead a reasonable
person who had suffered such damage to consider it
sufficiently serious to justify his instituting
proceedings for damages against a defendant who
did not dispute liability and was able to satisfy a
judgment;
(b) that the damage was attributable in whole or in part
to the act or omission which is alleged to constitute
negligence;
(c) of the identity of the defendant; and
(d) if it is alleged that the act or omission was that of a
person other than the defendant, of the identity of
that person and the additional facts supporting the
bringing of an action against the defendant.

(6) Knowledge that any acts or omissions did or did not, as a

matter of law, involve negligence is irrelevant for the purposes of
subsection (1).
 - 112 -

(7) For the purposes of this section or section 33 a person’s

knowledge includes knowledge which he might reasonably have been
expected to acquire 
(a) from facts observable or ascertainable by him; or
(b) from facts ascertainable by him with the help of
appropriate expert advice which it is reasonable for
him to seek,
but a person shall not be taken by virtue of this subsection or section 33 to
have knowledge of a fact ascertainable only with the help of expert advice
so long as he has taken all reasonable steps to obtain (and, where
appropriate, to act on) that advice.”

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

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:

“ (1) An action for damages for negligence, other than one to

which s.27 applies, shall not be brought after the expiration of 15 years
from the date (or, if more than one, from the last of the dates) on which
there occurred any act or omission 
(a) which is alleged to constitute negligence; and
(b) to which the damage in respect of which damages
are claimed is alleged to be attributable (in whole or
in part).

(2) This section bars the right of action in a case to which

subsection (1) applies notwithstanding that 
(a) the cause of action has not yet accrued; or
(b) where s.31 applies to the action, the date which is
for the purposes of that section the date of
knowledge has not yet occurred,
before the end of the period of limitation prescribed by this section.”
 - 113 -

Section 38(A)

Finally it is necessary to note the provisions of subsections (2)

and (3) of s.38A, which read:

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

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

(3) Subject to subsection (2), sections 22A, 31 and 32 shall

have effect in relation to causes of action accruing before, as well as in
relation to causes of action accruing on or after, 1 July 1991.”

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.

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:

(i) the cause of action did not accrue until after 1 July 1985;
and

(ii) BEA did not have the knowledge referred to in s.31 (“the
requisite knowledge”) before 20 June 1991, the action
having been commenced on the third anniversary of that
date.

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:

(i) the cause of action did not accrue until after 1 July 1985;
and
 - 114 -

(ii) BEA did not have the requisite knowledge before 25 May
1993, the action having been commenced on the third
anniversary of that date.

Economic loss

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.

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?

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.

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
 - 115 -

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

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”.

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:

“ There is evidence that, in about March 1993, there was some cause
for the Bank to believe that all was not well with the cladding. This is
probably why Bolton Construction conducted a site investigation in May
1993. Outside the contemporaneous documents, this evidence, and,
indeed, generally the oral evidence, is, understandably with the lapse of
time, vague. The limitation point is a defence, and it is for the
defendants to establish it.

In my view, assuming that BEA should have been suspicious about

the condition of the cladding in about March 1993, it acted with
reasonable despatch in following up on its suspicion.
 - 116 -

The evidence leads me to believe that it was not until about the
middle of 1993 that the defects 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. It is
impossible to be precise about when, on this basis, it can be said that the
cause of action accrued. It cannot be at the moment in time when the
owner decides to call in the expert. There must be a reasonable time gap
to enable the expert to examine the building and report his findings on the
cause and extent of the defects. It is only then that it can be said that
what is suspected is verified, and this ‘marks the moment when the market
value of the building is depreciated, and therefore the moment when the
economic loss occurs’. This, in my judgment, must have been after 24
May 1993. So, in my view, the writs against TW and P & T were issued
within three years of the cause of action accruing to BEA.”

I see no basis on which to disturb these findings.

The Pirelli case

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.

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.
 - 117 -

The Nykredit case

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.

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.

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

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:
 - 118 -

“… the basic comparison called for is between (a) the amount of money
lent by the plaintiff, which he would still have had in the absence of the
loan transaction, plus interest at a proper rate, and (b) the value of the
rights acquired, namely the borrower’s covenant and the true value of the
overvalued property.”

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

“ For what, then, is the valuer liable? The valuer is liable for the
adverse consequences, flowing from entering into the transaction, which
are attributable to the deficiency in the valuation. This principle of
liability, easier to formulate than to apply, has next to be translated into
practical terms. As to this, the basic comparison remains in point, as the
means of identifying whether the lender has suffered any loss in
consequence of entering into the transaction. If he has not, then
currently he has no cause of action against the valuer. The deficiency in
security has, in practice, caused him no damage. However, if the basic
comparison throws up a loss, then it is necessary to inquire further and see
what part of the loss is the consequence of the deficiency in the security.”

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.

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):

“In the present case the borrower’s covenant was worthless. The
borrower defaulted at once, and the amount lent (£2.45m.) at all times
exceeded the true value of the property (£2.1m.). Thus the cause of
action arose at the time of the transaction (12 March 1990) or thereabouts.
By December 1990 the bank had sustained its full allowable loss of £1.4m.
I would award simple interest on that amount from 12 December 1990
until judgment at the agreed rate of 0.4 per cent above LIBOR (London
Inter-bank Offered Rate).”

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.”
 - 119 -

The Invercargill case

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.

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.

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
 - 120 -

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”.

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.

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
 - 121 -

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

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.

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
 - 122 -

those words of Deane J in Sutherland Shire.

The Invercargill approach should be adopted

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.

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.
 - 123 -

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.

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:

“But the mere fact that an enactment shows that Parliament must have
thought that the law was one thing does not preclude the courts from
deciding that the law was in fact something different. This has been
stated in a number of cases including Inland Revenue Commissioners v.
Dowdall, O’Mahoney & Co. Ltd [1952] AC 401. No doubt the decision
would be different if the provisions of the enactment were such that they
would only be workable if the law was as Parliament supposed it to be.
 - 124 -

But, in my view, all that can be said here is that these enactments would
have a narrower scope if the law was found to be that compensation must
be assessed at a date later than that of the notice to treat. I do not think
that that is sufficient to preclude your Lordships from re-examining the
whole matter.”

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

“An argument was developed to the effect that a consideration of s.57 of

the Town and Country Planning Act, 1944, of ss.50 and 55 of the Town
and Country Planning Act, 1947, and of ss.14 and 15 of the Town and
Country Planning Act, 1959, shows that they were enacted on the
assumption that the value of land is or has been ordinarily assessed by
reference to the date of a notice to treat. I think that that does appear.
But Parliament has never so enacted, and I do not think that we are
precluded from demonstrating that the assumption need not be made.”

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

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

“It is a trite observation that Parliament does not change the existing law
simply by betraying a mistaken view of it. It would be a very different
state of affairs if Parliament in effect said that some existing practice
should be treated as being and as always having been the law, and then
proceeded to enact some new provisions on that basis. Parliament would
not, I suppose, normally be so explicit as regards the existing practice, and
the courts would have to decide whether the language of the new
provisions necessarily imported the translation into law of the practice.
In the present case I am clear that this cannot be said to be the effect of the
provisions relied upon by the appellants.”

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

with Lord Reid.

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.
 - 125 -

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

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

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.

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.

All things considered, I am of the view that this Court must

undertake the apportionment of responsibility as between TW and the
 - 126 -

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

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.

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:

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.

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
 - 127 -

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.

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.

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

 - 128 -

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.

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

 - 129 -

Ching PJ, seems not only the most appropriate, but also to best accord

with the authorities in general.

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.

Accordingly, I would also dismiss the Bank’s appeal against

both the defendant architects and the cladding subcontractors.

Lord Nicholls of Birkenhead NPJ:

I agree with the judgment of Mr Justice Bokhary PJ. I add

some observations only on the question of limitation.

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.

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.
 - 130 -

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.

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.

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
 - 131 -

orthodox doctrine, the would-be plaintiff sustained no damage and, hence,

time did not begin to run against him.

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.

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.

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
 - 132 -

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.

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.

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:

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

 - 133 -

(Henry Litton) (Charles Ching)

Permanent Judge Permanent Judge

(K. Bokhary) (G.P. Nazareth) (Lord Nicholls of Birkenhead)

Permanent Judge Non-Permanent Judge Non-Permanent Judge

Mr Bruce Mauleverer QC and Mr John Scott SC instructed by Messrs

Masons for the Appellant

Ms Gladys Li SC and Mr Peter Clayton instructed by Messrs Denton Hall

for the 1st Respondent

Mr Michael Thomas SC and Mr Godfrey Lam instructed by Messrs

Mallesons Stephen Jaques for the 2nd-5th Respondents