Peabody Donation Fund Governors v Sir Lindsay Parkinson & Co Ltd [1983] UKHL 5

House of Lords
Between
Peabody Donation Fund GovernorsAppellantSir Lindsay Parkinson & Co LtdRespondent
Before
Sir Lindsay Parkinson
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of tier Majesty's Court of Appeal of the 29th day of July 1983 complained of in the said Appeal be, and the same is hereby, Affirmed and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay or cause to be paid to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties.Cler: Parliamentor:

HOUSE OF LORDS

GOVERNORS OF THE PEABODY DONATION FUND

(APPELLANTS)

v.

SIR LINDSAY PARKINSON & COMPANY LIMITED AND OTHERS

(RESPONDENTS)

Lord Keith of Kinkel Lord Scarman Lord Bridge of Harwich Lord Brandon of Oakbrook Lord Templeman

LORD KEITH OF KINKEL

My Lords,In 1972 the appellants, the Governors of the Peabody Donation Fund ("Peabody") decided to undertake the development for housing of a site known as Knights Hill, in the London Borough of Lambeth. They engaged as contractors for the project Sir Lindsay Parkinson & Co. Ltd. ("the contractors") and as architects Austin Vernon & Partners ("the architects"). Consulting engineers were also instructed.The site of the development, which was for 245 houses, presented certain problems. It required to be terraced and the nature of the subsoil was London clay, which tends to expand and contract with the seasons and to give rise to movement. For this reason it was appreciated by the architects, and the consulting engineers advising them, that the traditional rigid type of drainage system was likely to be unsuitable for the project, since there would be a high probability of failure, and the architects therefore designed a system which incorporated flexible joints between pipes at various critical points and submitted plans for approval to the respondents, the London Borough of Lambeth ("Lambeth").The application for approval was made in pursuance of paragraphs 13(1) and 15(1) and (2) of Part III of Schedule 9 to the London Government Act 1963, which provide:
"13(1) It shall not be lawful in an inner London borough ( a ) to erect any house or other building, or ( b ) to rebuild any house or other building which has been pulled down to a level below, the floor commonly called the ground floor, unless there are provided to the satisfaction of the borough council drains conforming with the requirements of this paragraph and all such drains and ail works and apparatus in connection therewith are constructed to the satisfaction of the council and, in particular, are constructed of such materials and size, at such level and with such fall, as are approved by the council and are provided with a water supply . . ."

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"15(1) No person shall - ( a ) begin to lay or dig out the foundations of any house or building in an inner London borough, or to rebuild any house or building therein; or ( b ) begin to make any drain for the purpose of draining directly or indirectly into a sewer under the control of the council of such a borough, unless, at least seven days previously, he has given to the borough council notice of his intention so to do, and if any person begins to lay or dig out the foundations of any such house or building, or to make any drain for the purpose aforesaid, in contravention of this paragraph, he shall be liable to a fine not exceeding £5 and to a further fine not exceeding £2 for every day thereafter until the notice is given. (2) If any house or building, or any drain for draining directly or indirectly into a sewer under the control of the council of a London borough, or any connections to such a drain, or any works, apparatus or water supply in connection with such a drain, is or are begun, erected, made or provided in an inner London borough in contravention of the provisions of this Part of this Schedule or of the corresponding provisions of any enactment repealed by this Act, the council of the borough at their option may either - ( a ) serve upon the owner of the house or building or of the drain (as the case may be) a notice requiring him to cause the house or building to be demolished or altered or to cause the drain or the connections or other works and apparatus in connection therewith or the water supply to be relaid, remade, altered or added to, as the case may require; or ( b ) recover from the person in default, as a debt due from him to the council, a penalty not exceeding £5, and a further penalty not exceeding £2 for every day on which the contravention continues."
The application was made on 6 April 1972, and an informal indication seems to have been given by Lambeth that it was likely to be approved. Early in 1973 the contractors were ready to begin the construction of the drainage system. The architects' representative on the site was a trainee architect named Mitchell. Lambeth had instructed a drainage inspector named Marlow to carry out inspections of the drainage installation. On 2 February 1973 Mitchell and Marlow met and agreed between themselves that in certain parts of the system the planned flexible joints should be abandoned and fixed joints substituted. On 7 February 1973, Mitchell wrote a letter to the contractors' site agent, who had also been present at the meeting, confirming the agreement to this variation. It does not appear that either Mitchell or Marlow ever informed their respective principals about what they had done. In the result, the trial judge found, and the finding is not disputed by the appellants, that Marlow had neither actual nor ostensible authority to agree the variation so that Lambeth itself bears no responsibility for his action.Very soon afterwards, on 14 February 1973, Lambeth, through their senior assistant director (civil engineering), wrote to the architects intimating approval in principle of the plans originally submitted by the latter, i.e. those showing flexible joints throughout. However, the contractors commenced the construction of drains incorporating rigid joints on the lines agreed between Mitchell and Marlow.

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The next development was that Marlow was superseded by another drainage inspector, named Toogood, who had little experience in this field having previously been employed as a plumber. He asked the contractors' site agent for information about the nature of the drains which were being constructed. The site agent wrote a letter, addressed to the Lambeth Public Health Department and headed "For the attention of Mr. Toogood," indicating inter alia that runs and connections into and abutting the dwelling houses were laid with rigid joints. Toogood took no action on this letter and in particular did not bring it to the attention of any of his superiors in the department. Had he done so there can be no doubt that steps would have been taken to ensure that flexible joints were installed throughout the system.The upshot was that construction with fixed joints proceeded and in due course tests carried out in late 1975 and early 1976 revealed that many of the drains had failed. Reconstruction was necessary, at a cost of some £118,000, completion of the development was delayed for about three years, with consequent loss of rents for Peabody, and Peabody were faced with substantial claims by the contractors for additional payments said to be due to them because of the delay.In these circumstances, Peabody started proceedings against the contractors, the architects and Lambeth. Their case against the contractors was based on the allegation that the failure of the drains was caused by faulty workmanship. Against the architects it was alleged that they failed to check the contractors' faulty workmanship and further that they instructed the contractors to install drains lacking the requisite flexible joints. In the event the claim against the architects was compromised. As regards Lambeth the material averment of negligence against them was in these terms:
"Knowing that rigid drains were being installed between the vertical stacks in the buildings and the manholes following receipt of the said letter of 4 May 1973, thereafter failing to require flexibly jointed drains wherever rigid drains had been or were to be installed."
The case came for trial on issues of liability before Judge Oddie sitting as a deputy official referee. On 24 January 1983 he gave judgment holding that, although there had been some faulty workmanship on the part of the contractors, this was not the cause of the failure of the drains, and that the cause of the failure was the design change instructed by Mitchell from flexible joints to rigid joints. He did not have to deal with the claim against the architects since that, as mentioned above, had been compromised. He went on to find that Lambeth were liable in damages to Peabody on the ground of failure to take steps to ensure that the drainage system as installed complied with the design originally approved by them.Lambeth appealed to the Court of Appeal against the latter part of the judgment, and on 29 July 1983 that court (Lawton, Fox and Slade L.JJ.) allowed the appeal and reversed the decision of the trial judge. Peabody now appeal to your Lordships' House.

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Peabody's case, in substance, is that Lambeth were under a duty of care, owed to Peabody, when they became aware through the letter of 4 May 1973 that the contractors were installing drains with rigid joints, to invoke their powers under paragraph 15 of Part III of Schedule 9 to the Act of 1963 so as to require a reversion to the flexible joint design which they had previously approved. The duty is not said to be a statutory one, but one that arose on common law principles because Lambeth ought to have foreseen that, if they did not take steps to stop the installation of drains with rigid joints, severe economic loss would ensue to Peabody through the necessity at some future date of taking up these drains and replacing them with others of the approved design, as in fact happened.It may be accepted that knowledge of the contents of the letter of 4 May 1973 is to be imputed to Lambeth. It was addressed to Lambeth's Public Health Department, albeit for the attention of Mr. Toogood, and the latter was clearly under a duty to bring it to the notice of higher authority. It may also be accepted that Lambeth had power under paragraph 15 of Part III of Schedule 9 to stop the unauthorised installation. No doubt it would have been sufficient, in fact, to draw to Peabody's attention that the rigid joints were unauthorised. So the issue really comes to be whether Lambeth owed a duty to Peabody to warn them that they were heading for financial disaster.Lord Atkin's famous enunciation of the general principles upon which the law of negligence is founded, in Donoghue v. Stevenson [1932] AC 562 , 580, has long been recognised as not intended to afford a comprehensive definition, to the effect that every situation which is capable of falling within the terms of the utterance and which results in loss automatically affords a remedy in damages. Lord Reid said in Dorset Yacht Co. v. Home Office [1970] AC 1004 , 1027:
"It is not to be treated as if it were a statutory definition. It will require qualification in new circumstances. But I think that the time has come when we can and should say that it ought to apply unless there is some justification or valid explanation for its exclusion. For example, causing economic loss is a different matter; for one thing, it is often caused by deliberate action. Competition involves traders being entitled to damage their rivals' interests by promoting their own, and there is a long chapter of the law determining in what circumstances owners of land can and in what circumstances they may not use their proprietary rights so as to injure their neighbours. But where negligence is involved the tendency has been to apply principles analogous to those stated by Lord Atkin: cf. Hedley Byrne & Co. Ltd, v. Heller & Partners Ltd. [1964] A.C. 465. And when a person has done nothing to put himself in any relationship with another person in distress or with his property mere accidental propinquity does not require him to go to that person's assistance. There may be a moral duty to do so, but it is not practicable to make it a legal duty."
Lord Wilberforce spoke on similar lines in Anns v. Merton London Borough Council [1978] AC 728 , 751-752:

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"Through the trilogy of cases in this House - Donoghue v. Stevenson [1932] AC 562 , Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 , and Dorset Yacht Co. Ltd, v. Home Office [1970] AC 1004 , the position has now been reached that in order to establish that a duty of care arises in a particular situation, it is not necessary to bring the facts of that situation within those of previous situations in which a duty of care has been held to exist. Rather the question has to be approached in two stages. First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter - in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise: see Dorset Yacht case [1970] AC 1004 , per Lord Reid at p. 1027."
There has been a tendency in some recent cases to treat these passages as being themselves of a definitive character. This is a temptation which should be resisted. The true question in each case is whether the particular defendant owed to the particular plaintiff a duty of care having the scope which is contended for, and whether he was in breach of that duty with consequent loss to the plaintiff. A relationship of proximity in Lord Atkin's sense must exist before any duty of care can arise, but the scope of the duty must depend on all the circumstances of the case. In Dorset Yacht Co. v. Home Office [1970] AC 1004 , 1038, Lord Morris of Borth-y-Gest, after observing that at the conclusion of his speech in Donoghue v. Stevenson [1932] AC 562 , Lord Atkin said that it was advantageous if the law "is in accordance with sound common sense" and expressing the view that a special relation existed between the prison officers and the yacht company which gave rise to a duty on the former to control their charges so as to prevent them doing damage, continued, at p.1039:
"Apart from this I would conclude that, in the situation stipulated in the present case, it would not only be fair and reasonable that a duty of care should exist but that it would be contrary to the fitness of things were it not so. I doubt whether it is necessary to say, in cases where the court is asked whether in a particular situation a duty existed, that the court is called upon to make a decision as to policy. Policy need not be invoked where reason and good sense will at once point the way. If the test as to whether in some particular situation a duty of care arises may in some cases have to be whether it is fair and reasonable that it should so arise, the court must not shrink from being the arbiter. As Lord Radcliffe said in his speech in Davis Contractors Ltd, v. Fareham Urban District Council [1956] AC 696 , 728, the court is 'the spokesman of the fair and reasonable man.'"

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So in determining whether or not a duty of care of particular scope was incumbent upon a defendant it is material to take into consideration whether it is just and reasonable that it should be so.In the instant case Peabody, the owners of the building site and the undertakers of the development thereon, bore responsibility, under paragraph 13 of Part III of Schedule 9 to the Act of 1963, for securing that the drains conformed to the design approved by Lambeth. Mr. Dyson, for Peabody, brought to the attention of the House certain drainage byelaws made by the Greater London Council in 1962 under the statutory predecessor of the Act of 1963. These undoubtedly place certain very specific obligations upon contractors carrying out building operations, but they do nothing to detract from what is clearly the proper construction of paragraph 13(1), namely, that observance of its provisions is incumbent upon any person who puts in train a house building project. Peabody no doubt had no personal knowledge or understanding of what was going on. They relied on the advice of their architects, engineers and contractors, and in the event they were sadly let down, particularly by the architects. But it would be neither reasonable nor just, in these circumstances, to impose upon Lambeth a liability to indemnify Peabody against loss resulting from such disastrous reliance.The purpose for which the powers contained in paragraph 15 of Part III of Schedule 9 have been conferred on Lambeth is not to safeguard building developers against economic loss resulting from their failure to comply with approved plans. It is in my opinion to safeguard the occupiers of houses built in the local authority's area, and also members of the public generally, against dangers to their health which may arise from defective drainage installations. The provisions are public health measures. In Anns v. Merton London Borough Council [1978] AC 728 , a case concerned with defective foundations, Lord Wilberforce said at p. 758, under the heading "To whom the duty is owed";
"There is, In my opinion, no difficulty about this. A reasonable man in the position of the inspector must realise that if the foundations are covered in without adequate depth or strength as required by the byelaws, injury to safety or health may be suffered by owners or occupiers of the house. The duty is owed to them - not to a negligent building owner, the source of his own loss."
The plaintiffs in that case were lessees under long leases which they had acquired from a building developer, either directly or at a certain remove. The damages which they were held entitled to recover consisted in such sums as each of them required to expend in order to put his house in such a state that it was no longer a danger to safety or health. (See per Lord Wilberforce at p. 759). It is important to notice that these sums were not recoverable as economic loss pure and simple, but as representing expenditure necessary to avert injury to safety or health. The passage I have quoted from the speech of Lord Wilberforce raises certain difficulties. In particular, it is difficult to see how, having regard to the scope of the duty held to exist, a non-resident owner could fail within the ambit of it, since he would not be subject to any possible injury to safety or health. Yet Lord Wilberforce would

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appear to be saying that the duty is owed separately to owners and to occupiers. In fact, the plaintiffs, as long lessees, were in substance both owners and occupiers, and in my opinion the decision should be treated as restricted to that situation. Further, the reference to "a negligent building owner, the source of his own loss" to some extent begs the question whether a duty is owed to the owner since negligence on the part of a claimant does not necessarily, since the Law Reform (Contributory Negligence) Act 1945, preclude recovery of damages against a negligent defendant, though it may reduce them. The question whether a building owner's negligence is the sole cause of his loss raises a question of causation, not liability. It is also to be observed that the basis upon which the measure of damages was arrived at would present difficulties in the case of a claim by one occupying upon terms which did not permit of his carrying out any alterations to the structure of the house. The solution of these difficulties is not, however, necessary to the determination of the instant appeal. It is sufficient to hold that Lambeth owed no duty to Peabody to activate their paragraph 15 powers, notwithstanding that they might reasonably have foreseen that failure to do so would result in economic loss to Peabody, because the purpose of avoiding such loss was not one of the purposes for which these powers were vested in them. I find myself in respectful agreement with the following passage in the judgment of Slade L.J. in the court below [1983] 3 W.L.R. 754, 767-768):
"Can it have been the intention of the legislature, in conferring on a borough council power to enforce against a defaulting site owner requirements made by it in accordance with paragraph 13 of Part III of Schedule 9, to protect such owner against damage which he himself might suffer through his own failure to comply with such requirements? In my opinion, this question can only be answered in the negative. This particular power exists for the protection of other persons - not for that of the person in default. I say nothing about the case where a local authority have failed to make known their requirements or where they have made requirements of an inadequate or defective nature. However, I can see no justification for extending the law of negligence by imposing on a local authority, over and above their public law powers and duties under paragraphs 13 and 15, a duty to exercise their powers of enforcement under paragraph 15(2), owed in private law towards a site owner, who, whether with or without personal negligence, disregards the proper requirements of the local authority, duly made under paragraph 13 and duly communicated to him or persons authorised to receive them on his behalf. The practical implications of giving the defaulting owner a right to sue the local authority for damages in such circumstances need consideration, but no elaboration."
Mr. Dyson relied strongly on two recent cases decided by different divisions of the Court of Appeal within a week of each other, apparently without either division knowing of the case before the other. In the first of these, Acrecrest Ltd, v. W. S. Hattrell & Partners [1983] Q.B. 260, the owners of a site employed independent architects and contractors to build a block of flats and garages, which they subsequently leased out. The architects had prepared plans providing for foundations 3 feet 6 inches deep,

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but at the owner's request revised them so as to provide for foundations only 3 feet deep. The local authority's building inspector instructed that the foundations should be 5 feet deep in some places and 3 feet 6 inches to 4 feet deep elsewhere. The nature of the site was such that it was necessary for stability that the foundations be 5 feet deep overall. Defects developed in respect of which the tenants claimed against the owners. The owners sued the architects for damages for negligence and breach of contract, and the architects joined the local authority as third parties, claiming contribution. The action against the architects was compromised, but their claim for contribution proceeded to trial. The trial judge held that the local authority were liable for breach of a duty of care owed to the owners, and assessed their contribution at 25 per cent. His decision was affirmed by the Court of Appeal. Stephenson L.J., giving the leading judgment, construed the passages which I have quoted from the speech of Lord Wilberforce in the Anns case [1978] AC 728 as intended to lay down that a local authority, in the exercise of its supervisory functions over building projects, owed a duty of care to a building developer to see that his property did not suffer damage, even though there was no question of apprehended injury to the health or safety of the developer. Donaldson L.J. expressed a similar view, as did Sir David Cairns. In my opinion they failed to appreciate correctly the course of Lord Wilberforce's reasoning and consequently misapplied the decision in Anns. In the result, the Acrecrest case [1983] Q.B. 260 was wrongly decided and should in my opinion be overruled.The second case to which I have referred is Dennis v. Charnwood Borough Council [1983] Q.B. 409. The facts were that in 1955 the plaintiffs commissioned a builder to construct a house for their own occupation upon a site which consisted partly of an infilled sand pit. Plans were submitted to the local authority under byelaws which corresponded in material respects with paragraph 13 of Part III of Schedule 9 to the Act of 1963. The plans snowed the foundation to consist of a concrete raft and were duly approved by the local authority. This was in fact an unsuitable foundation for the site, and many years later subsidence led to serious cracking of the structure. The plaintiffs sued the statutory successors of the local authority for damages on the ground of negligence in passing plans indicating an inadequate foundation, and judgment in their favour was given by Forbes J. and affirmed by the Court of Appeal (Lawton, Templeman and Fox L.JJ.). The argument turned principally upon whether the trial judge's conclusions on liability were justified on the evidence, and also upon the question of limitation. Templeman L.J., delivering the leading judgment, did not find it necessary to give any elaborate consideration to the question whether the local authority owed a duty of care to the plaintiffs, regarding the matter as concluded in the latter 's favour by the decision of this House in Anns [1978] AC 728 . He said,[1983] Q.B. 409, 414-415:
"The first question is whether the council, when they considered and passed the plan of the house owed any duty of care to Mr. Dennis. In Anns v. Merton London Borough Council [1978] AC 728 the House of Lords decided that under the Public Health Act 1936 local authorities owe a duty to give proper consideration to the question whether they should inspect the carrying out of any building work.

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If they decide to inspect, they are under a duty to use reasonable care in carrying out their supervisory function of ensuring compliance with the building byelaws but only within the limits of discretion bona fide exercised as to the time and manner of inspection: per Lord Wilberforce at p. 755. The duty is owed to the owner or occupier at the date when damage occurs as a result of a breach of duty by the local authority. The duty is not owed to a negligent building owner who is the source of his own loss: per Lord Wilberforce at p. 758. In my judgment, if local authorities are liable within the limits prescribed in the Anns case for negligence in connection with the discretionary inspection of building works, they must similarly be liable for negligence in failing to use reasonable care in considering and approving plans. There is no suggestion that Mr. and Mrs. Dennis, the building owners, were negligent or the source of their own loss. They were entitled to trust the builder and the council. They were entitled to claim damages against the builder if he was negligent. They were entitled to claim damages against the council if the council were negligent in breach of their duty to take reasonable care in the consideration of the plan of the house or in the exercise of their supervisory and discretionary power of inspection."The decision is in my opinion to be justified on the basis that the plaintiffs, as owners who were the intended occupiers of the house, were within the ambit of the duty of care laid down in Anns. They were persons injury to whose safety or health might necessarily be expected to occur if the foundations of the house were inadequate. There can be no doubt that, under the ratio decidendi of Anns, a remedy against the local authority would have been available to any subsequent occupier who had purchased the house. The plaintiffs were in breach of certain material provisions of the relevant byelaws dealing with the adequacy of foundations, but the fact remains that plans showing the intended foundations had been submitted with their authority and had been approved. This approval might reasonably be taken as an indication that the foundations were satisfatory, and considering that the plaintiffs themselves had no technical knowledge nor understanding of the position and that their own safety and health were in issue, it would be unreasonable and unjust to hold that the local authority owed them no duty. The decision does not, however, assist Peabody in the present case, because not only was there no question of injury to health or safety at issue so far as they were concerned, but they were proceeding to install drains with fixed joints in flat disregard of Lambeth's requirements.My Lords,for these reasons, I would dismiss the appeal.

LORD SCARMAN

My Lords,I have had the advantage of reading in draft the speech to be delivered by my noble and learned friend Lord Keith of Kinkel. I agree with it, and for the reasons he gives I would dismiss the appeal.

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LORD BRIDGE OF HARWICH

My Lords,For the reasons given in the speech of my noble and learned friend Lord Keith of Kinkel, with which I agree, I too would dismiss the appeal.

LORD BRANDON OF OAKBROOK

My Lords,I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Keith of Kinkel. I agree with it, and for the reasons which he gives I would dismiss the appeal.

LORD TEMPLEMAN

My Lords,I agree with the speech of my noble and learned friend, Lord Keith of Kinkel, and for the reasons he gives I too would dismiss the appeal.

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