Liability for Defects (Part 1)

The CA found ‘sufficient proximity’ on the basis that the developers knew/ought to have known that their negligence in construction of the common property would have to be made good by the MC, which was their direct successor ([1996] 1 SLR 113 at page 140B).

In fact, the CA went so far as to say that the MC/developer relationship was ‘as close as it could be short of actual privity of contract’ ([1996] 1 SLR 113 at page 142A).

However, the CA acknowledged the need to guard against recognising claims which would allow ‘liability in a an indeterminate amount for an indeterminate time to an indeterminate class’ (MC Strata Tile Plan 1075 v RSP Architects & Planners & Engineers [1999] 2 SLR 449 at page 470C).

The CA saw no risk of this in Ocean Front ([1996] 1 SLR 113 at page 142C) — the amount recoverable was the cost of repairs which was not in any way indeterminate. The class of persons was thought to be finite and definable, ie the MC. The duration was determinate in that the maximum period of liability was restricted by the Limitation Act. The Court of Appeal also felt that there would be no indefinite transmissibility of quality because the defective common property that would always be within the control and management of the MC. No other party would ever get this right.

Ocean Front involved a two stage analysis. First, determine if there exists a relationship of sufficient proximity between the parties to found a duty of care. If so, consider whether policy considerations such as indeterminate liability would negative such a duty.

It is important to note that Ocean Front involved claims by the MC for common property defects. The plaintiff was not an individual subsidiary proprietor claiming in respect of his individual lot. This distinction is relevant in cases of subsequent purchasers, not original purchasers. Unlike the subsequent purchaser, the original subsidiary proprietor has a sustainable claim in contract against the developer for pure economic loss for defects in his individual lot.

In 1995, the Australian High Court rejected D&F Estates and Murphy in its landmark decision of Bryan v Maloney (1995) 128 ALR 163. They allowed a subsequent owner of a residential building to recover from the original builder the pure economic loss suffered as a result of the builder’s negligence. Bryan v Maloney was cited with approval by the CA in Ocean Front.

It has been suggested4 that Singapore’s departure from Murphy and the CA’s approval of Bryan v Maloney supports recovery in tort by subsequent purchasers for pure economic loss, in respect of individual lots. The CA in Ocean Front, however, was very careful to stress that unlimited liability would not result from allowing the claim by the MC. It is unclear how allowing a claim by a subsequent purchaser in respect of an individual lot would deal with this concern.

In 1999, the CA revisited Ocean Front in MC Strata Title Plan No 1075 v RSP Architects & Planners & Engineers [1999] 2 SLR 449 (‘Eastern Lagoon’). Like Ocean Front, Eastern Lagoon involved a claim by the MC for pure economic loss arising from common property defects. The one important difference was that Eastern Lagoon involved a claim brought directly against the consultants.

The CA was invited in Eastern Lagoon to overturn their earlier decision in Ocean Front or at least to reject the attempt to extend Ocean Front from an MC/developer situation to a MC/consultants situation. The CA, however, extended liability to the consultants, reaffirming the two-stage analysis of Ocean Front.5

The CA found that there was, in fact, a sufficient degree of proximity in the MC/consultant relationship. This finding was based on the consultants:

1. assuming the responsibility of professional competence vis-à-vis the developers who engaged them; and
2. knowing that the MC, being responsible for the management of the common property, would depend on their care and skill in the design and supervision of the common property ([1999] 2 SLR 449 at page 469E).

This analysis (as with the analysis in Ocean Front) suggests two categories relevant to determining the relationship of proximity:

1. assumption of responsibility; and
2. known reliance.

At the second stage of the analysis, the CA contended that there was no difference between Ocean Front and Eastern Lagoon — ie the amount recoverable was determinate, the persons to whom the architects/engineers were liable was a definable class and the time span was not indeterminate (see paragraph 10 of this article for a more detailed analysis of this in Ocean Front).

Recovery in respect of Defective Chattels

The CA in Eastern Lagoon was only willing to draw a clear line of demarcation at chattels. They highlighted two factors which distinguished negligent design of buildings from negligent manufacture of goods:

1. investment in property, especially in a place like Singapore, is likely to be a significant, if not the most significant, investment by an individual;
2. the permanence of the structure as opposed to a chattel.

These two factors were in the CA’s view ‘instrumental in dictating the expectations and degree of reliance placed upon persons developing, building or designing the structures which stands upon it’ ([1999] 2 SLR 449 at page 470I).

An interesting query yet unanswered by the Singapore courts is the position at law in the case of a very expensive and exclusive chattel. Such chattels would have the purchaser’s high expectations attached to it and involve a large amount of investment. Would that be in the same class as buildings?

Non-Common Property and Non-MC Cases

What is less clear following the two local CA decisions, however, are cases involving individual subsidiary proprietors seeking to recover for defects in their own individual units. The MC is of course under no obligation to repair any such defects, unlike their obligation for common property defects (see section 48(1)(b) and (j) of the Land Titles (Strata) Act). Also unclear is the case of commercial properties for which the developers have not applied and obtained individual strata titles, ie no MC is in existence.

Commercial Properties

There have been no reported Singapore decision dealing with the application of the Eastern Lagoon principles to commercial properties. This issue arose in Australia as recently as 1998 inFangrove Pty Ltd v Tod Group Holdings Pty Ltd (1999) 2 Qd R 235 (‘Fangrove’). Fangrove involved a claim by a subsequent owner of a commercial building against the structural engineer for negligent design of the original parapet.

The Queensland Court of Appeal was technically bound by the Australian High Court decision of Bryan v Maloney (supra).

In spite of this, it declined to follow Bryan v Maloney, concluding that it was limited to the peculiarities of residential property. In particular, the Court of Appeal considered that the two key components in establishing a relationship of sufficient proximity, ie the elements of ‘assumption of responsibility’ and ‘known reliance’, did not apply to cases involving commercial buildings. Per Chesterman J, at page 245:

… [this] case is distinguishable from Bryan. The … distinction calls into question the very basis for the imputation of assumption of responsibility and reliance which underpins the decision in Bryan. The purchaser of a substantial commercial building acquired for profit does not fit the description [as was the case in Brian] of a purchaser of a modest suburban house who ‘is likely to be unskilled in building matters and inexperienced in the niceties of real property investment’.

It is unclear whether this distinction will find favour with the local Singapore courts, when considering the first step of the Eastern Lagoon test, ie whether there was a sufficient relationship of proximity between the parties. However, even if this test is satisfied, the owners of some commercial properties may have to contend with a second difficulty if there is no corporate entity such as the MC in existence.

As has been seen in Eastern Lagoon and Ocean Front, this point requires an analysis of whether the existence of a duty will give rise to liability ‘in an indeterminate amount for an indeterminate time to an indeterminate class.’ Unlike the MC, which under the current legal regime, is the perpetual corporate legal personality to sue for common property defects, there is in this case no such perpetual legal personality. What this means is that architects face the potential problem of multiple liability from the same damage to the same building to successive owners of the property, ie an indeterminate class of persons. This arises because (unlike the MC who is statutorily bound to keep the common property in good repair), an owner who successfully recovers damages for defective work is not bound to expend that money in rectifying the defective work. In principle therefore, there is nothing to prevent a subsequent owner suing for the same damage.

Contractual Provisions — Can they help?

Given the increased potential sphere of liability arising from Ocean Front and Eastern Lagoon, building professionals are likely to be under some compulsion to examine avenues by which they might limit/exclude such potential liability through contractual provisions.

Such provisions can be relevant in assessing the extent of responsibility that has been assumed. ‘Assumption of responsibility’ is one of the components the court examines when seeking to ascertain whether there is a relationship of sufficient proximity for there to be tortious liability for pure economic loss (see Ocean Front and Eastern Lagoon as commented on above).

Certainly, the greatest impact of such an approach is in cases where there are separate contracts between A and B on the one hand and a subsequent contract between B and C, all within the context of the same project. In a tortious claim between A and C (who have no direct contractual relationship with each other), the presence of an exclusion/limitation clause between A and B has been held to be relevant in considering the existence of a duty in tort between A and C, and assessing whether there has been any reliance on, or acceptance of responsibility for, such a duty.6

The following commentary by the English Court of Appeal in Pacific Associates v Baxter [1989] 3 WLR 1150 at page 1177 helps to illustrate the point:

… the absence of a direct contractual nexus between A and B does not necessarily exclude the recognition of a clause limiting liability to be imposed on A in a contract between B and C, when the existence of that contract is the basis of the creation of a duty of care asserted to be owed by A to B. The presence of such an exclusion clause while not being directly binding between the parties, cannot be excluded from a general consideration of the contractual structure against which the contractor demonstrates reliance con, and the engineer accepts responsibility for a duty in tort, if any, arising out of the proximity established between them by the existence of that very contract.

The point is illustrated in Norwich City Council v Harvey (1988) 45 BLR 14, which involved a claim in negligence by the building owner (A) against a sub-contractor (C) for fire damage arising from carelessness by the sub-contractor’s employee. The owner’s contract with the main contractor (B) provided that the owner accepted the risk of damage by fire, ie in the A/B contract. The main contractor subsequently entered into a sub-contract with the defendants’ sub-contractor, which bound the sub-contractor ‘to the same terms and conditions as those of the main contract.’ The effect of this would have been that the owner assumed the risk of damage by fire. The English Court of Appeal ruled that the sub-contractor did not owe a duty of care in tort to the building owner given the manner in which parties had chosen to structure the apportionment of risk for fire damage as illustrated by the following passage from the judgment (pages 24–25, as per May LJ):

… it is clear that as between the employer and the main contractor, the former accepted the risk of damage by fire to its premises out of and in the course of the building works. Further, although there was no privity between the employer and the sub-contractor, it is equally clear … that the sub-contractor contracted on a like basis … approaching the question on the basis of what is just and reasonable … the mere fact that there is no strict privity between the employer and the sub-contractor should not prevent the latter from relying upon the clear basis upon which all the parties contracted in relation to damage to the employer’s building caused by fire, even when due to the negligence of the contractors or sub-contractors.

While it is true that the court did not expressly refer to questions of reliance and assumption of responsibility, it is possible to analyse the judgment on such terms.

Where, however, a specific risk is expressly assumed by the plaintiff under the provisions of the main contract vis-à-vis only a certain class of persons, then the courts will not permit persons outside this class, to cite the plaintiff’s assumption of risk as a defence to the tortious claim against them for the loss suffered (British Telecom plc v Thomson Ltd [1999] 1 WLR 9).

The situation becomes more complicated when one is dealing with a claim by someone who is a stranger not only to the contract, but to the overall relationship between the parties which may have been regulated by a contractual scheme.

In such a case, the contractual provisions would only be relevant in determining the responsibility assumed by the contracting party. It is unlikely to have any relevance in terms of reliance by the plaintiff (either specifically or generally) since the plaintiff is unlikely to have had knowledge of the existence of the terms of the contract.

In the Australian case of Voli v Inglewood Shire Council (1962– 1963) 110 CLR 74, the plaintiff sued (amongst others) the architect who had negligently designed a stage that subsequently collapsed, injuring the plaintiff.7 The High Court ruled that any contractual exclusion in the architect’s contract of engagement could not operate to discharge the architect from a duty of care to persons who are strangers to these contracts. However, the court accepted that such a provision would not be (page 85):

… an irrelevant circumstance. It determines what was the task upon which he entered. If, for example, it was to design a stage to bear only some specified weight, he would not be liable for the consequences of someone thereafter negligently permitting a greater weight to be put upon it.

This is an untested point in Singapore. However, given the increasing responsibilities placed on building professionals, making clear the limits to which they are prepared to assume responsibility in their own contracts of engagement may well assist them in seeking to resist or limit liability to subsequent purchasers of properties for defective work.

Conclusion

Part 2 of this paper, which will appear in the next issue of The Singapore Law Gazette, will examine architects’ duties of design and supervision, including the legal implications of delegation to a clerk-of-works and of following a particular design/supervision industry practice.

Mohan Pillay
Wong Partnership

Endnotes

1 MC Strata Title Plan No 1272 v Ocean Front Pte Ltd [1996] 1 SLR 113 and MC Strata Tile Plan 1075 v RSP Architects & Planners & Engineers [1999] 2 SLR 449.

2 Pure economic loss as a result of negligent misstatements/advise is an exception: Hedley Byrne & Co Ltd v Heller [1964] AC 465.

3 For example, if a building collapses causing physical injury to a person or his property, such damage would be recoverable from the architects on proof of negligence.

4 Ong Debbie, ‘Defects in Property Causing Pure Economic Loss: Resurrection of Junior Books and Anns’ [1996] SJLS 257 at page 261.

5 The CA did not see any reason why the two-stage test could not be applied in extending the principles in Ocean Front to the situation in Eastern Lagoon, ie liability extending from the developer down to the consultants he had engaged, for pure economic loss arising from common property defects being claimed at the instance of the MC.

6 Pacific Associates v Baxter [1989] 3 WLR 1150, White v Jones [1995] 1 All ER 691 and Norwich City Council v Harvey (1988) 45 BLR 14.

7 While this did not involve pure economic loss (the plaintiff was suing for the physical injuries he sustained), it is useful for its comm

Ref:
Singapore Law Gazatte. 2000. Architects and the Law - Liability For Defects (Part 1), available at
http://www.lawgazette.com.sg/2000-10/Oct00-feature3.htm