Junior Books v Veitchi

Case Report

JUNIOR BOOKS LTD. v. VEITCHI Co. LTD.

JUNIOR BOOKS LIMITED, Pursuers (Respondents).– Murray, Q.C.–Drummond Young.
VEITCHI COMPANY LIMITED, Defenders (Appellants)).– Cullen, Q.C.–Rodger.

Negligence–Duty of care–Economic loss–Liability of sub-contractor to employer for negligence in execution of work under contract with main contractor–No injury, damage or danger to any person or other property–Loss consisting of cost of replacing defective work and economic or financial loss consequential upon replacement–Relevancy–Whether necessary proximity to give rise to duty of care–Whether that duty fell to be restricted.

The respondents entered into a contract with main contractors whereby the main contractors constructed a factory for the respondents. The respondents' architects nominated the appellants as specialist sub-contractors for the purpose of laying a floor in the main production area of the factory. The respondents averred that the appellants' workmanship was seriously defective in a number of respects with the result that the floor required replacement in order to avoid the necessity for continual maintenance which would be more expensive in the long run. They claimed the cost of such replacement from the appellants, together with certain consequential loss which they said they would suffer while the work of replacement was being carried out. The claim was founded in delict, the respondents pleading that they suffered loss through the appellants' negligence and were entitled to reparation therefor.
    The respondents' pleadings contained no averment that the defective nature of the flooring had led or was likely to lead to any danger of physical injury to workpeople or of damage to property, moveable or immoveable, other than the floor surface itself, or even of economic loss through interruption of production processes. The only type of pecuniary consequential loss claimed for was for that arising out of the need to replace the flooring.
    The respondents averred that the appellants were specialists in flooring, that the appellants knew what products were required and specialised in the production of those products, that the appellants alone were responsible for the composition and construction of the flooring, that the respondents relied upon the appellants' skill and experience and that the appellants as nominated sub-contractors must have known that the respondents relied upon their skill and experience. The relationship between the parties was viewed by the Court as being as close as it could be, short of actual privity of contract, and the appellants were taken to have known that if they did the work negligently the resulting defects would at some time require remedying by the respondents' expending money upon the remedial measures in consequence of which the respondents would suffer financial or economic loss.
    It was contended for the appellants that the action was irrelevant in that it was a claim for damages for pure economic loss not related to physical damage (actual or potential) to persons or to property belonging to the respondents.
    The Lord Ordinary (Grieve) allowed the respondents a proof before

answer. On appeal the Second Division affirmed the interlocutor of the Lord Ordinary.
    Held (aff. judgment of Second Division, diss. Lord Brandon of Oakbrook) (1) that the action was relevant (per Lords Fraser of Tullybelton, Russell of Killowen and Roskill) because all the conditions existed creating the necessary degree of proximity giving rise to a duty of care owed by the appellants to the respondents, and there was no reason on the facts to restrict the duty of care arising from that proximity.
    Dicta of Lord Devlin in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465 at pp. 529, 530, of Lord Reid in Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 1004 at p. 1026, and of Lord Wilberforce in Anns v. Merton London Borough Council [1978] A.C. 728 at pp. 751, 752 applied).
    (2) That (per Lord Keith of Kinkel) the action was relevant because the scope of the duty formulated in Donoghue v. Stevenson had been developed to cover the situation where pure economic loss was to be foreseen as likely to be suffered by one standing in the requisite degree of proximity, and that reasonable anticipation of physical injury to personal property was not a sine qua non for the existence of a duty of care, and because, where a duty of care existed through the presence of such reasonable anticipation and it was breached, then, even though no such injury had actually been caused because the person to whom the duty was owed had incurred expenditure in averting the danger, that person was entitled to damages measured by the amount of that expenditure.
    Spartan Steel and Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] Q.B. 27 and Dynamco Ltd. v. Holland & Hannen & Cubitts (Scotland) Ltd. 1971 S.C. 257 doubted by Lords Fraser of Tullybelton, Russell of Killowen and Roskill.

(In the Court of Session, 1st September 1980.)

    JUNIOR BOOKS LIMITED raised an action in the Court of Session against Veitchi Company Limited claiming damages in respect of their negligence in supplying and constructing a floor as nominated sub-contractors of the main contractors who were engaged by the pursuers to construct a factory for them. The damages consisted of the cost of replacing the said floor and also certain consequential loss which would be sustained while the work of replacement was being carried out. The facts of the case are set out in the opinion of the Lord Ordinary (Grieve) and,in the speeches of Lord Keith of Kinkel and Lord Roskill.

    On 3rd and 4th July 1979 the case was heard at procedure roll before the Lord Ordinary. On 22nd November 1979 the Lord Ordinary allowed the pursuers a proof before answer.

    LORD GRIEVE'S OPINION.–The pursuers in this case are a company who have a factory in Earl's Road, Grangemouth, which was constructed between September 1969 and May 1970. The defenders are a company which specialise in the laying of floors. According to the pursuers' averments the defenders laid the flooring of the production area of the pursuers' said factory. The material for the flooring was a magnesium oxychloride composition which was laid in two coats on a screeded concrete base. The contract for the laying of the said flooring was concluded between the defenders and Messrs Ogilvie (Builders) Limited, who were the main contractors for the construction of the pursuers' factory. The pursuers were thus not in a contractual relationship with the defenders in respect of the

laying of the flooring, but the pursuers aver that their architects relied on the defenders as flooring specialists to ensure that the flooring was correctly laid so far as the mix and the procedure for laying it was concerned.

    In article III of the condescendence the pursuers aver that late in 1972 cracks began to appear in the surface of the said floor, and that further cracks have appeared since then over extensive areas of the floor. They aver that substantially the whole of the production area is affected, but that the "cracking is confined to the top layer of the said floor." The pursuers aver that as a result of the cracking they have suffered loss and damage. The loss and damage which the pursuers allege they have suffered is set out in article VII of the condescendence. In their article of condescendence the pursuers aver that ultimately large sections of the floor were lifted from the concrete base, that certain areas of the floor have lifted already and require replacement. They go on to aver that to avoid the necessity of continual maintenance, which would be more expensive than immediate replacement, the floor surface requires replacement at as early a date as possible. The cost of replacement is estimated at £50,000. The pursuers further aver that during the period of treatment books would have to be stored at a cost of £1,000; machinery would have to be moved at a cost of £2,000; the business would have to be temporarily closed with a loss of profit of £45,000; wages would have to be paid to employees who cannot work amounting to £90,000; fixed overheads of £16,000 which will produce no return, will have to be paid, and a sum of £3,000 will have to be paid for the investigations into the treatment required. These items total £206,000 which is the sum sued for, and, with a possible exception of the £50,000 required to replace the floor, and the £3,000 allegedly necessary to investigate the treatment required to do so, all the items could reasonably be described as items of economic or financial loss. These damages are alleged to be due on the basis that the pursuers' loss was caused by the negligence of the defenders.

    In article IV of the condescendence it is averred that the defenders, as reasonably competent flooring contractors, should have known the proportions of magnesium oxychloride and accordingly were under a duty to mix and lay the magnesium oxychloride composition with reasonable care, and that by using an unnecessarily wet mix they failed in that duty. In article V it is averred that, as reasonably competent flooring contractors, the defenders should have known of a code of standard practice and were accordingly under a duty to take reasonable care in laying the top coat of the composition and that they failed to do so because the top coat was insufficiently thick. In article VI it is averred that the defenders, as reasonably competent flooring contractors, ought to have known the correct procedure for curing and dressing the magnesium oxychloride composition flooring and were accordingly under a duty to take reasonable care to ensure that the floor was dry before dressing it, that they did not do so, and that that materially contributed to the ultimate cracking of the plot there. In none of these articles of condescendence is it specified why the defenders owed the alleged duties of care to the pursuers. The duties are all averred to flow from the defenders' position as reasonably competent flooring contractors, and not from any relationship which they had as such with the pursuers.

    The defenders tabled a general plea to the relevancy of the pursuers' averments and that was the plea which was debated before me. Counsel for the defenders asked me to dismiss the action as irrelevant, there being no averments in the pursuers' pleadings relevant to found an action against the defenders in delict. The pursuers maintain that I should allow them a proof before answer of all their averments.

    Counsel on both sides of the bar were agreed that there was no Scottish authority directly in point to which reference could be made. They were, however, also agreed that such law as there was, which bore on the questions under debate, stemmed from the decision of the House of Lords in the well-known Scottish case of Donoghue v. Stevenson 1932 S.C. (H.L.) 31 and in particular the oft quoted passage of the speech of Lord Atkin in that case where his Lordship posed the question, "Who, then, in law, is my neighbour?" and thereafter proceeded to answer it in such a way as to provide a basis for extending the scope of actions based on negligence. It is interesting to note in passing that that case, which has had worldwide repercussions, was debated on procedure peculiar to Scotland and the fact on which the debate centred, namely the alleged presence of a snail in a ginger beer bottle, was not established at the proof which subsequently took place.

    The defenders' submissions were presented on a narrow front. In his opening speech, junior counsel for the defenders made for convenience what I will call four "concessions." They were (1) since the decision in Donoghue v. Stevenson cit. sup. the fact that the pursuers' contract for the laying of the floor was with Ogilvie Builders and not with the defenders was of itself no bar to an action against the defenders as nominated sub-contractors on the ground of their alleged negligence; (2) if the pursuers had been able to aver that the defenders had carried out their work negligently in such a way as to cause personal injury to some person the pursuers could have had an action against the defenders, and, if the pursuers had averred that there was a risk of their employees tripping on the cracks in the floor and injuring themselves, that would have been sufficient to found an action against the defenders at the pursuers' instance based on delict; (3) further, if some property of the pursuers had been damaged as a result of someone tripping on the floor because the floor was cracked, the pursuers could have recovered damages from the defenders; (4) if the defenders' construction of the floor had been such that it threatened the health and safety of the persons using the property, the defenders could be held liable in damages for the cost of averting such danger and making the floor safe (Anns v. London Borough of Merton [1978] A.C. 728; Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B. 554). Counsel submitted that no averments covered by these concessions had been made by the pursuers in this case and that their averments were accordingly irrelevant. In the circumstances of this case it was essential for the pursuers to aver that there was imminent danger to health and safety due to the way in which the defenders had constructed the floor in question in order to found an action against the defenders in delict. The defenders were not under a delictual duty to the pursuers to do the work of constructing the floor in such a way that it would not have to be relaid. A claim for purely financial loss, which this was, could only be made against the principal contractors.

    Senior counsel for the defenders elaborated the argument of his junior on this point. He submitted that while a person who carried out work on land was under a duty to do it in such a way as to avoid injury to persons and damage to property, it did not follow that he was liable for financial loss which was not referable to damage to persons or property (Dynamco Limited v. Holland and Hannen and Cubitts (Scotland) Ltd. 1971 S.C. 257). The law recognised a delictual liability for financial loss (Dutton v. Bognor Regis Urban District Council [1972] 1 Q.B. 373) but it does not follow that in every case financial loss is recoverable. There was no authority which held that a contractor was liable for financial loss because of work badly done except when it caused personal injury, or damage to property, or where it threatened damage to persons or property. In order to pass the test of relevancy, counsel submitted that the pursuers had to be able to demonstrate that the defenders owed them a duty to take care to lay the floor in such a way that it would not cause them financial loss. They could not do so, and therefore their action must be dismissed as irrelevant. The argument for the defenders proceeded on the assumption that the pursuers' averments were bereft of any allegations that the loss which they claimed resulted from damage to their property or any part of it. It also accepted the fact that in the doing of their work, the defenders were under a duty to carry it out with reasonable care so as not to injure the property of the pursuers. No challenge was made of the pursuers' apparent failure to aver specifically that the duties, which they alleged rested on the defenders, arose out of a relationship of proximity. Both junior and senior counsel supported their submissions by reference to authorities, some of which I shall refer to in due course, but before I do so I think it is helpful to outline the submissions made on behalf of the pursuers.

    Junior counsel for the pursuers, under reference to Dorset Yacht Company v. Home Office [1970] A.C. 1004, and in particular the speech of Lord Reid at pp. 1076–7, submitted that if a person acts in such a way that harm is reasonably foreseeable to another person, a duty of care arises in favour of that other person, unless there are good policy reasons to the contrary. The laying of a floor puts a duty of care on the person who lays it, because, if he lays it carelessly, harm may result to somebody, and it does not matter who that person is. Where a contractor does work on property, such as the laying of a floor, harm can arise from careless workmanship in four possible ways. Personal injury caused to a third party. Personal injury may be caused to the owner of the property. Damage may be caused to the owner's property or to the property of a third party, and finally damage may be caused to the building itself which, counsel submitted, was what had happened here. Senior counsel for the pursuers, in the last of what I thought, if I may say so, were four excellent speeches, concentrated on the last point made by his junior. What the pursuers say in their pleadings, counsel submitted, is that that part of their property which the defenders constructed, and which they operated on to do so, namely the floor of the production area in their factory at Grangemouth, was damaged by the defenders. The defenders were under a duty not to cause damage to the pursuers' property. They were specialists, and it was clearly within their contemplation that if they did this work carelessly damage could be caused to the pursuers' property. There was a

duty on a sub-contractor who is in, what counsel called "a proximity relationship" with an employer, to perform his work in such a way as not to cause damage or loss to the employer. Counsel said he used the word "damage" in a general sense, and not in a restricted sense. The pursuers offered to prove that the defenders had caused physical damage to their property which had resulted in financial loss to them, and that there seemed no reason in principle why such a remedy should be denied to them, having regard to the fact, which appeared to be conceded, that, if the defenders' operations had caused the floor to be in such a state that it threatened danger to health and safety, or caused or threatened damage to their property, any financial loss incurred in putting it right would be recoverable.

    Having set out the lines of argument on behalf of the parties, it is helpful to look at a passage in the speech of Lord Wilberforce in Anns v. London Borough of Merton cit. sup., a case concerned with an alleged failure to take reasonable care in inspecting the foundations of local authority houses as a result of which occupiers suffered damage. At p. 753 of the report his Lordship said:–"Through the trilogy of cases in this House– Donoghue v. Stevenson [1932] A.C. 562, Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465, and Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 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 would be likely to cause damage to the latter–in which case a prima facieduty 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 to limit the scope of that duty, or the class of person to whom it is owed or the damage to which a breach of it may give rise: see Dorset Yacht case [1970] A.C. 1004 per Lord Reid at 107." The relevant passage from Lord Reid's speech in the Dorset Yacht case is as follows:–"In later years there has been a steady trend towards regarding the law of negligence as depending on principle so that when a new point emerges one should ask not whether it is covered by authority but whether recognized principles apply to it. Donoghue v. Stevenson [1932] A.C. 562 may be regarded as a milestone, and the well-known passage in Lord Atkin's speech should I think be regarded as a statement of principle. It is not to be treated as if it were a statutory definition. It will require qualification in new circumstances. But I think 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. But examples causing economic loss is a different matter: for one thing it is often caused by deliberate action."

    I now proceed to consider counsel's submissions with these two passages in mind and I did not understand counsel on either side to suggest that was not a perfectly legitimate approach to their respective arguments.

    As I have already said, the defenders accepted that the pursuers' averments demonstrated a sufficient relationship of proximity between them and the pursuers so as to place certain duties of care on the defenders vis-a-visw the pursuers in the work of laying the floor. The existence of a relationship giving rise to a duty of care was thus not in dispute; what was in dispute was the scope of that duty.

    In seeking to limit the scope of their duty the defenders maintained that the pursuers' averments demonstrated no more than careless conduct on the defenders' part. Senior counsel for the defenders, on this particular matter, submitted that the pursuers' pleadings seemed to predicate a case of negligence in vacua. As Lord Wright said in M'Mullan v. Lochgelly Iron and Coal Co. 1933 S.C. (H.L.) 64 at p. 78, "Negligence means more than heedless or careless conduct," and on a very strict reading of the pursuers' averments it could be suggested that all the pursuers are saying is that the defenders were careless in the laying of the floor. Once, however, it is conceded, as it is in this case, that the defenders were under a duty to exercise care in the laying of the floor, so as not to cause injury to persons using the premises or to the premises themselves, "the complex concept of duty breached and damage thereby suffered by the person to whom the duty was owing," as Lord Wright put it in a continuation of the passage in M'Mullen to which I have just referred, is opened up, and the defenders' actings no longer stand alone in vacua, but become related to the pursuers' property and we get back to what I think are the more difficult questions, namely, whether the pursuers' averments of loss are to be read as a claim for purely financial loss and, if so, whether that construction by itself makes the pursuers' averments irrelevant, or whether, as counsel for the pursuers submitted, they are to be regarded as setting out a claim for damage to property and financial loss connected with that damage.

    Counsel for the defenders submitted that as the pursuers' averments lacked any mention of the defenders being under a duty not to injure their property, or persons legitimately using it, the only way to regard their claim was as one alleging a financial loss. They were seeking to be put back in the position which they would have been if the floor had been properly constructed. This was merely a claim for breach of contract, disguised as a delictual one, because the parties were not in a contractual relationship. The cost of replacement, which is what the pursuers were seeking, could only be recovered from the sub-contractors such as the defenders, when it arose out of damage to property which gave rise to imminent danger to health or safety (vide Dutton v. Bognor Regis UDC cit. sup. and Batty cit. sup.). It was not averred here that the defenders' allegedly bad workmanship had given rise to any danger to the property itself, or persons using it. Reference was made to a Canadian case, Rivtow Marine v. Washington Iron Works (1973) 40 D.L.R. (3d) 530, and a New Zealand case, Bowen v. Paramount Builders [1977] N.Z.L.R. 394, in both of which the question of damage to persons and property arose. In short the defenders submitted that the pursuers' averments amounted to no more than a series of allegations of bad workmanship on the defenders' part without averring that the bad workmanship had damaged their property.

    Senior counsel for the pursuers, in seeking to refute these arguments,

maintained that his averments demonstrated a complaint that damage had been caused to that part of the pursuers' property on which the defenders had operated. In order to resolve the matter I must now take a closer look at the pursuers' averments which neither counsel for the defenders analysed in detail.

    The starting point for consideration of the pursuers' averments is, I think, that the defenders are averred to have been specialists in flooring on whose expertise the pursuers' architects relied (Record, 5D and 6B to C). The next point is that, while it appears that the said factory, including the prodution area, had been constructed by May 1970 (Record, 5B to C and 6D), it was not until late in 1972 that cracks began to appear in the surface of the floor. The cracks were confined to the top layer (Record 6A to B). It appears from the pursuers' averments that there were two layers (Record 6A to B). The pursuers set out the various reasons which they allege gave rise to the cracking in articles IV, V and VI of the condescendence. These are, as set out more fully at the start of this opinion, the use of an unnecessarily wet mix in the top coat, an application of an insufficiently thick top coat of magnesium oxychloride composition, and an inadequate curing of that composition when it was laid on the production area floor. All these are said to have demonstrated a lack of the standard of care to be expected of a reasonably competent flooring contractor. In article VII the pursuers aver that the cracking has caused them loss, injury and damage. They further aver, "The cracking which has occurred in the floor will continue to deteriorate. Ultimately large sections of the floor will lift from the concrete base. Certain areas of floor have lifted already and require replacement." Counsel for the defenders maintained that these averments did not disclose any injury to the pursuers' property, or to the health or safety of persons using it, and were therefore irrelevant in an action based on delict and a claim for financial loss. Counsel for the pursuers submitted, under reference to the Record at p. 8, that damage to the top layer of the floor was damage to the pursuers' property, and not just a defect in the floor. In considering the respective submissions I am of opinion it has to be borne in mind that the defenders were not doing work on an existing building, the structure of which they could damage, but were engaged in the construction of an integral part of a new building, namely the floor of the production area. This is alleged to require replacement or, more expensively, continual maintenance. Is this to be regarded as careless workmanship giving rise only to a claim in contract, or a failure to exercise due care resulting in damage to property which would give rise to a claim in delict? The present claim, had it arisen out of alleged damage caused by the defenders to any part of the pursuers' factory other than the floor, which the defenders were constructing, would have been accepted as relevant, even if that claim had only been in respect of financial loss. It is because the damage is limited to the thing being constructed by the defenders, and can thus be regarded simply in a case of defective workmanship which gives rise only to financial loss, that the pursuers' claim is being criticised.

    Assuming for the moment that, as the defenders submit, the pursuers' claim falls to be regarded as one for financial loss, which does not arise from damage to their property, actual or threatened, I approach the matter not as

a question decided by authority, it being admitted that there is no authority directly in point, but as desiderated by Lord Reid in the Dorset Yacht case, from the standpoint of principle. In so doing I further assume, as was conceded by the defenders, that the defenders, in the carrying out of their work on the construction of the pursuers' flooring, were neighbours-in-law of the pursuers in such a way as to be under a duty of care not to cause injury to the pursuers or their property. The scope of that duty is perhaps open to question, but the duty existed. Bearing in mind that, in essence, the defenders' challenge to the pursuers' claim is that it is a claim in delict for financial loss, I look for a starting point in principle on the question of what damages can be claimed in delict. The starting point must be in the words of Lord Kinloch in Allan v. Barclay (1864) 2 M. 873 at 874 when his Lordship said: "The grand rule of damages is that none can be claimed except such as naturally and directly arise out of the wrong done; and such, therefore, as may reasonably be supposed to have been in the view of the wrongdoer." Assuming that a claim purely for financial loss arose naturally and directly out of a wrong done it would not be excluded by that dictum, which, so far as I am aware, has never been doubted. The dictum was referred to in the recent case of Dynamco v. Holland and Hannen and Cubitts cit. sup., a claim in respect of financial loss consequent on damage to an electric cable carrying power to a factory other than the factory of the pursuers, but interrupting the pursuers' production. The claim by Dynamco was rejected on two grounds: (1) that it was a claim for financial loss which did not arise from damage to the claimant's own property, and (2) that the alleged loss was too remote to sound in damages.

    Had the financial loss flowed from damage to the pursuers' own property the claim would have been relevant, albeit the question of remoteness would still have remained open. In course of his opinion in that case, Lord Migdale said at p. 265 of the Report: "The law of Scotland has for over a hundred years refused to accept that a claim for financial loss which does not arise directly from damage to the claimant's property can give rise to a legal claim for damages founded on negligence." That observation could be taken to mean that damages to a claimant's property, or person, was a prerequisite for a claim for financial loss on the ground of negligence. I would respectfully doubt that, particularly having regard to what was said by Lord President Clyde in Reavis v. Clan Line Steamers 1925 S.C. 725 at 740, "In the law of Scotland … a person claiming reparation for injury by another person's fault cannot go beyond the effects of such injury on his own person, his own health, his own business or other capabilities, and his own property." That dicta would not exclude a claim for financial loss to the claimant's own business or earning capacity, without damage to his personal property. What seems to me to be excluded is a claim in delict for financial loss following damage to somebody else's property (Dynamco) or somebody else's person (Reavis). To be relevant the alleged loss must not only arise directly for the breach of duty, but be connected with the claimant's own person, health, property or business. Claims of such a nature have been recognised by the law of England vide Ministry of Housing and Local Government v. Sharp [1970] 2 Q.B. 223 and in particular the opinion of Salmon L.J. (as he then was) at p. 278 where his Lordship said, inter alia: "So far, however, as

the law of negligence relating to civil actions is concerned, the existence of a duty to take reasonable care no longer depends on whether it is physical injury or financial loss which can reasonably be foreseen as a result of failure to take care," and as the Scots and English laws of negligence have been said on high authority to be the same (Dorset Yacht Co. v. Home Office, cit. sup., per Lord Reid at 1028F), the observation of Lord Salmon could be prayed in aid in a Scottish claim for financial loss on the ground of negligence. The question of remoteness would of course still remain open, and it might be that there were reasons of public policy why a claim for financial loss should not be considered (vide Dorset Yacht Co., cit. sup., per Lord Reid at 1027A to B).

    Had I taken the view that the whole of the pursuers' claim fell be regarded as a claim for financial loss resulting from alleged negligence on the part of the defenders, I would not have dismissed it as irrelevant on the ground that the alleged loss was connected with, and arose out of, the defenders' activities on property belonging to the pursuers and to nobody else. The question of remoteness would remain at large and be a matter for proof.

    I do not, however, take the view that the pursuers' claim must be regarded as one for financial loss only. The averments at 23B that "Ultimately large sections of the floor will lift from the concrete base, certain areas of floor have lifted already and require replacement," are apt to imply damage, actual and threatened, to property belonging to the pursuers. On that view claims for financial loss consequent of such damage, if they can be established and shown to be the direct and natural result of the alleged negligence, are relevant, even on the defenders' submissions.

    In the whole circumstances I am of opinion that the proper course to follow is to allow the pursuers a proof before answer of all their averments.

    The defenders reclaimed and, on 8th and 9th July 1980, the case was heard before the Second Division.

    At advising on 1st September 1980, the Second Division refused the reclaiming motion and affirmed the interlocutor of the Lord Ordinary allowing a proof before answer.

    LORD JUSTICE-CLERK (Wheatley).–This is an action based on delict in which the pursuers seek substantial damages from the defenders on the ground of the latter's alleged negligence. The facts on which the pursuers' claim is based, the grounds of fault founded upon and the measure of the damages claimed are fully set out in the pursuers' pleadings and are comprehensively dealt with in the Lord Ordinary's judgment. I accordingly find it unnecessary to repeat them. The defenders have tabled one general and three particular pleas to the relevancy of the pursuers' pleadings, but we are only concerned with the general plea at this juncture. This was the only plea argued before the Lord Ordinary and in due course before this Court. In essence this plea is to the effect that the pursuers have not stated a relevant case in that they have not made averments which, taken pro veritate at this stage as they have to be, establish that the defenders owed any duty in delict to the pursuers in respect of the type of loss for which the latter claim damages. The Lord Ordinary refused to give effect to that plea in hoc statu

and allowed parties a proof before answer. It is against that decision that the reclaiming motion has been taken.

    When the case was debated before the Lord Ordinary, defenders' counsel made four statements which the Lord Ordinary for convenience termed "concessions." They were (1) since the decision in Donoghue v. Stevenson 1932 S.C. (H.L.) 31 the fact that the pursuers' contract for the laying of the floor was with Ogilvie Brothers and not with the defenders was of itself no bar to an action against the defenders as nominated sub-contractors on the ground of their alleged negligence; (2) if the pursuers had been able to aver that the defenders had carried out their work negligently in such a way as to cause personal injury to some person the pursuers could have had an action against the defenders, and, if the pursuers had averred that there was a risk of their employees tripping on the cracks in the floor and injuring themselves, that would have been sufficient to found an action against the defenders at the pursuers' instance based on delict; (3) further, if some property of the pursuers had been damaged as a result of someone tripping on the floor because the floor was cracked, the pursuers could have recovered damages from the defenders; (4) if the defenders' construction of the floor had been such that it threatened the health and safety of the persons using the property, the defenders could be held liable in damages for the cost of averting such danger and making the floor safe ( Anns v. London Borough of Merton [1978] A.C. 728; Batty v. Metropolitan Realisations Ltd. [1978] Q.B. 554). These were repeated to this Court.

    In view of the first of these "concessions," it has to be kept firmly in mind that the measure of the defenders' legal obligations towards the pursuers here is the principles of delict and not the principles of contract. The only way in which the latter came into this case is that the defenders maintain that the pursuers' averments are only habile to establish a claim under contract with which this case is not concerned since there was no contract between the parties, and these are not sufficient to instruct negligence to which other criteria apply.

    The defenders conceded that in the circumstances which prevailed a neighbourhood relationship within the meaning of the Donoghue v. Stevenson exposition existed between the parties. They argued, however, that here there were considerations which limited the class of persons to whom a duty in delict arose and the nature of damages recoverable–cf. Lord Wilberforce in Anns v. London Borough of Merton [1978] A.C. 728 at pp. 751 and 752. Their submission, briefly stated, was this. All that the pursuers averred was that the work done on the floor was defective, nothing more. The items of damage which the pursuers claim were consequential upon that alleged defective workmanship and might have constituted a relevant case if their claim had been based on contract, but there was no contract. In so far as a claim based on negligence was concerned, damages for financial loss could only be recovered as an adjunct to damages for physical damage or threatened physical damage to persons or property, and here the pursuers make no averment of physical damage or threatened physical damage to persons or property. The pursuers' case was accordingly irrelevant.

    This argument by the defenders gives rise to four questions, namely (1) do the pursuers' averments disclose circumstances which gave rise to a duty

owed by them to the pursuers on delict? (2) in that connection, is it necessary for the pursuers to aver that the defenders' actions caused physical damage or threatened physical damage to persons or property? (3) if this is necessary, have the pursuers done so? and (4) if they have failed to do so, does such an omission exclude the pursuers' right to damages?

    What, then, are the facts and duties averred by the pursuers? They are as follows. So far as the facts are concerned, the pursuers aver that the defenders' work in laying the magnesium oxychloride composition flooring on top of a concrete base (which had otherwise been constructed) was completed by May 1970. Late in 1972 cracks began to appear on the surface of the floor. Further cracks have appeared since then, and cracks are continuing to appear over extensive areas of the floor. Substantially the whole of the production area and corridors are affected, and the entrance to the production and loading bay areas are affected to some extent. The cracking is confined to the top layer of the floor. As a result of the cracking the pursuers have suffered the loss and damage condescended upon (Condescendence 3). The cracking which has occurred in the floor will continue to deteriorate. Ultimately large sections of the floor will lift from the concrete base. Certain areas of the floor have lifted already and require replacement (Condescendence 7). So far as duties are concerned, the pursuers aver that there were certain procedures which had to be followed in order to prevent cracking of the flooring; that the defenders, as reasonably competent contractors, knew or ought to have known of these procedures; that the defenders had accordingly a duty to follow these procedures; that the defenders failed to carry out that duty; that as a result the cracking in the flooring occurred; and that in consequence they, the pursuers, sustained loss, injury and damage on which they condescend in Condescendence 7.

    As previously noted, the defenders maintain that all that these averments establish is defective workmanship which might give rise to a remedy under contract if a contract existed. That, as previously pointed out, is not the test. The test is the ground on which the action is based, not the ground on which the action might have been based– Grunwald v. Hughes & Others 1965 S.L.T. 209. Looking at the matter purely as a case of delict, how do the pursuers' pleadings stand? I take as my starting point, as did the Lord Ordinary, a passage in the speech of Lord Wilberforce in Anns v. Merton London Borough Council [1978] A.C. 728 at p. 751: "Through the trilogy of cases in this House– Donoghue v. Stevenson [1932] A.C. 562, Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465, and Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 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 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 persons to whom it is owed or the damage to which a breach of it may give rise; see Dorset Yacht case (1970) A.C. 1004, per Lord Reid at p. 1027. Examples of these are Hedley Byrne's case (1964) A.C. 4645 where the class of potential plaintiffs was reduced to those shown to have relied on the statements made, and Wetter & Co. v. Foot and Mouth Research Institute [1966] 1 Q.B. 569; and (I cite these merely as illustrations, without discussion) cases about 'economic loss' where, a duty having been held to exist, the nature of the recoverable damages was limited; see S.C.M. (United Kingdom) Ltd. v. W. J. Whittall & Son Ltd. [1971] 1 Q.B. 337 and Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. 1973 Q.B. 27."

    In my opinion, the first of Lord Wilberforce's tests is clearly established by the pursuers' averments. So far as the second of his tests is concerned, that will be a question of circumstances in each case. The answer will depend on the twin considerations of remoteness and reasonable foreseeability. The defenders founded on S.C.M. United Kingdom Ltd. (supra), Spartan Steel & Alloys Ltd. (supra) and Dynamco v. Holland & Hannen & Cubitts (Scotland) Ltd. 1971 S.C. 257 to support their contention that "economic loss" per se, i.e. such loss not associated with damage to persons or property, is not recoverable even if negligence is established. I do not consider that there is such a broad principle to cover every case irrespective of the circumstances. The test which I have ventured to adumbrate above is drawn from my reading of all the cases. The considerations which I have in view in the instant case are these. There was a close relationship between the pursuers and defenders in respect of the work being done by the defenders for the pursuers. This distinguishes the instant case from cases where there was a general interruption of the electricity supply. A reasonable person in the position of the defenders would have reasonably foreseen that if the work was carried out negligently the pursuers would be put to the expense of rectifying it. The result is that the "economic loss" was both reasonably foreseeable and the direct and not too remote consequence of the defenders' negligence. That was the approach of Edmund-Davies L.J. (as he then was) in relation to the facts in the case of Spartan Steel (supra), and although his was a dissenting judgment on the facts of that case, I consider that his approach was the correct one to be applied to the circumstances of the instant case. It also would appear to be the view of Buckley L.J. in S.C.M. (U.K.) Ltd. (supra) at p. 357D to E. In that situation I am of the opinion that the first question which I posed supra falls to be answered in the affirmative, and that both in equity and in common sense the pursuers are entitled to a proof of their averments in substantiation of their claim.

    Even if the law does not go as far as I have ventured to suggest that it does in the circumstances of the instant case, there is another reason why I consider that the pursuers are entitled to the proof before answer which the Lord Ordinary has allowed. The defenders conceded that if there had been damage to the pursuers' property as a result of their negligence, the consequential expense of putting that damage right could be legitimately recovered by the pursuers. They maintained, however, that the damage had to be to property other than the property on which they had been working, even if that other property was in the same building. I accept the concession,

which follows from the cases considered, but reject the qualification. The property on which the defenders were working was the pursuers' property. The fact that the defenders were constructing the flooring made it none the less the pursuers' property. It was the pursuers' property constructed with a latent defect which manifested itself some two years later when there was a conjunction of damnum and injuria which determined the punctum temporis of the pursuers' claim. On that view there was damage both actual and threatened to the pursuers' property according to their averments, and if that be so then ex concessu the pursuers' averments are relevant. This provides the answer to the second and third questions which I posed, and the fourth accordingly does not arise.

    In these circumstances I do not find it necessary to deal with the further tract of authority placed before us. I am satisfied that the Lord Ordinary reached the correct decision in allowing the parties a proof before answer, following which the legal issues which may be outstanding can be determined on the facts as established. I therefore move your Lordships to refuse the reclaiming motion and adhere to the Lord Ordinary's interlocutor of 22nd November 1979.

    LORD KISSEN.–The issue between the parties at the end of the day was a narrow one. It was submitted for the defenders and reclaimers that a contractor carrying out work has a duty to take reasonable care to avoid causing physical damage to property by his work, "physical damage" in that sense being damage to something other than the work itself and "property" being something other than that defective work itself. Thus defectively done work cannot, on that view, found a claim in delict unless the defectively done work endangers or is likely to endanger other property or persons. The principle was expressed in different terms by stating that a contractor does not have a duty in delict to take reasonable care to avoid carrying out work where the only criticism of it is that it is defective or valueless. The basis for this latter variation of the principle was an obiter dictum of Stamp L.J. in Dutton v. Bognor Regis Building Co. Limited [1972] 1 Q.B. 373 at p. 414. The submission for the pursuers was that liability in delict was not excluded because the sole basis of the claim was the physical damage to property on which a contractor had carried out work, the physical damage being the result of defective workmanship and the property being thereby defective.

    Applying the general principles stated by Lord Reid in Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 1004 at p. 1007 and referred to with approval by Lord Wilberforce in Anns v. London Borough of Merton [1978] A.C. 728 at p. 753, quoted by the Lord Ordinary, I think that the submission for the pursuers is correct. There can, in my opinion, be no justification for limiting the damage to which a breach of duty gives rise to damage to other property, as was maintained for the defenders. No justification for such limitation was given other than that such a claim was appropriate to a contractual basis. That will not suffice as justification. The fact that a claim may be based on contract does not exclude that claim being also based on delict. There is, on the other hand, in my opinion, justification in principle for not so limiting it because of the illogical results which would follow. I refer to the observations

of Sachs L.J. in Dutton v. Bognor Regis Urban District Council [1972] 1 Q.B. 373 at pp. 403–4 and Woodhouse J. and Cooke J. in Bowen v. Paramount Builders 1977 1 N.Z.L.R. 394 at pp. 417 and 423 respectively. The obiter dictumof Stamp L.J. in Dutton to which I earlier referred and on which defenders' counsel relied is contrary to the observations of Sachs L.J. in Dutton supra, to which I have referred, to the observations of Lord Wilberforce in Anns supra specifically referred to by Bridge L.J. in Batty v. Metropolitan Realisations Ltd. [1978] Q.B. 554 at p. 572, and to the observations of Megaw L.J. in Batty supra at pp. 570–1.

    Although the circumstances in Anns supra and Bowen supra (approved by Lord Wilberforce in Anns supra) were different from the present case and although questions about the Public Health Act 1936 arose in the former case, I think that the principles to be derived from these cases support the pursuers' case on relevancy.

    I agree that the reclaiming motion should be refused.

    LORD ROBERTSON.–For the reasons given by the Lord Ordinary and your Lordships I agree that a proof before answer should be allowed in this case, and that the reclaiming motion should be refused.

    The defenders appealed to the House of Lords and the appeal was heard on 20th, 21st, 22nd and 29th April 1982.

    Argued for the appellants;–The case is about the relevancy of the pursuers' averments. For the test applicable, see Jamieson v. Jamieson 1952 S.C. (H.L.) 44. The question is whether, assuming that the pursuers proved all their averments, they would nevertheless fail as a matter of law. All that follows assumes the correctness of the averments. The main building contract was between the pursuers and a building company. The laying of the flooring was sub-contracted by the building company to the defenders, who were not in a contractual relationship with the pursuers. Cracks appeared in the flooring, and the pursuers did not sue the main contractors, but brought a claim in delict for damages against the defenders, alleging that the flooring had been negligently laid by them.

    The law to be applied is the same in Scotland and England. It is well established in the law of delict that a builder is under a duty to take reasonable care to avoid causing personal injury or damage to property in carrying out the work. The duty is owed not only to people with whom he is in contractual relationship, but also at large, subject to remoteness. If the duty is breached, he is liable in damages for the personal injury or damage to property. The occurrence of personal injury or damage to property completes the cause of action.

    So far the law is familiar. It is also suggested by recent authorities that there may be a cause of action when a building is in such a state that there is imminent danger of injury to occupants or of damage to property. It seems that the builder may then be liable in damages which represent not merely the cost of damage which has already occurred, but also the cost of altering the property so as to forestall injury or damage to property. The cases which show this are cases where the builder has undertaken the responsibility for the safe design of a property, and the design has been defective. It had not, however, been held that a builder was under a duty in delict to avoid providing work or materials of defective quality.

    The pursuers' averments in the present case show that their claim is not that the defenders provided a type of flooring which was unsuitable for the factory. Nor is it concerned with anything collateral to the carrying out of

the work, for example loss caused by a negligent misstatement as to the suitability of the type of flooring. Nor is the claim based on a defective design by the defenders before they carried out the work. The claim does not depend on any particular circumstance of the pursuers or defenders, or their knowledge of the circumstance. There is no allegation of danger or damage to persons or to any other property of the pursuers. It is not a claim where the essence of the claim is that loss of production or other financial loss has been caused owing to the state of the flooring. The averment is simply that the flooring was defective because of defective workmanship, and the principal claim is for the cost of replacing the flooring with a similar type of flooring in order "to avoid the necessity for continual maintenance" (the other items claimed being consequential thereon).

    It was held by the Second Division of the Court of Session that, in addition to the two types of cause of action referred to above, a builder has a duty in the law of delict (as distinct from a duty to someone with whom he is in contractual relationship), to avoid providing work and materials of defective quality, i.e. work and materials in which there has been defective workmanship. It must follow that all that is necessary to complete the cause of action is for the defect to become manifest, and that it is immaterial that there is no actual or imminent injury to persons or damage to property, or defective design.

    It is submitted that no such duty exists. To hold otherwise would be to extend the law greatly beyond the limits which the cases have hitherto put upon it. It is not disputed, with reference to Lord Wilberforce's statement of principle in Anns v. Merton London Borough Council [1978] A.C. 728, 751-2, that there was a close relationship of proximity between the pursuers and the defenders, but that is irrelevant since the essence of the claim was not damage caused by the flooring but the defective nature of the flooring itself.

    In Dutton v. Bognor Regis Urban District Council [1972] 1 Q.B. 373, 414, Stamp L.J. expressly rejected the proposition that a builder was under a duty not to build something that was useless or defective. He agreed with the other two members of the Court of Appeal on the decision because in his view the responsibility of the local authority depended on their being clothed with authority by an Act of Parliament, but his remarks on p. 414 are entirely apposite and of general application where the claim is simply based on defective workmanship by a builder. The decision in Dutton was concerned with the liability of a local authority for the fault of their inspector. It was essentially a design case, since the inspector was treated as one of a class of persons giving advice about the safety of buildings. The house should not have been constructed in the way it was because the foundations were insecure; the design was therefore inadequate for the situation of the house.

    In Rivtow Marine Ltd. v. Washington Iron Works (1973) 40 D.L.R. (3d) 530, what distinguished the majority from the minority was the attitude they respectively took to the cost of the repair of the crane. The majority rejected that claim on the ground that it only sounded in contract and was not of a type recognised in the law of tort. Laskin J., in the minority, took a different view only because of the significance he attached to the state of affairs brought about by negligent design and negligent manufacture constituting a danger to persons and property other than the crane. He did not treat the case as one of a defective product per se. What was involved in Bowen v. Paramount Builders (Hamilton) Ltd. [1975] 2 N.Z.L.R. 546 was also the production by a builder of a design which was inadequate. The building was sound, but it was placed on foundations which were unsuitable for it. It was not a case of bad workmanship.

    The point in the design cases is that if a builder builds to the design of an architect, the architect is responsible for the design. He has a duty to prepare a safe and adequate plan, but he does not build the house. The

builder is liable if there is bad workmanship by him which causes personal injury or damage to otherwise undamaged property, but he is not liable for the design. It may be otherwise if he designs the house himself.

    In Anns v. Merton London Borough Council [1978] A.C. 728, as in Dutton v. Bognor Regis Urban District Council [1972] 1 Q.B. 373, the prime concern was with the scope of a local authority's duty having regard to an Act of Parliament. The position of builders was also mentioned, but only for the purposes of comparison, for the argument that it would be unreasonable for a local authority to be liable where a builder was not. The passage of Lord Wilberforce at p. 759F may seem against the defenders, but it needs to be read in the context of the facts. Design was once again an important element in the facts, as was the imminent threat of danger. Lord Wilberforce was saying that in the case of a local authority there was a right of action to recover not only for physical damage that had already occurred, but also for what was necessary to put the building in a state where it no longer constituted a threat. It is accepted that a builder may be liable in situations similar to Anns or Dutton, but he is not on the present facts.

    Lord Wilberforce's approach was applied in Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B. 554 by Megaw L.J., who rested the right to damages on the fact that the house presented imminent danger to the health and safety of the occupiers. It is difficult to interpret what Bridge L. J. said at p. 572. Either he meant that damages were recoverable where a house was so dangerous to occupiers that it had become valueless, or that they were recoverable simply because it had become valueless per se. If the latter, it is submitted that he was wrong. Since Bridge L.J. adopted what Lord Wilberforce had said in Anns [1978] A.C. 728, 759E, it is probable that the first interpretation is correct, and all he was saying was that the house losing its value was a consequence of its dangerous state. Sparham-Souter v. Town and Country Developments (Essex) Ltd. [1976] Q.B. 858 takes the matter no further. It was another Dutton-type case, which was overtaken by Anns. There was support in Young & Marlm Ltd. v. M'Manus Childs Ltd. [1969] 1 A.C. 454 for the approach contended for; see per Lord Pearce at p. 468, and Lord Upjohn at p. 475.

    What emerges from the authorities, therefore, is (1) that persons making something have a duty to take reasonable care to avoid causing personal injury or damage to property other than the work itself, and (2) that the owner can also sue where it is necessary for him to take steps to forestall imminent personal injury or damage to property. That is the true explanation of cases concerned with property which has became hazardous, like Bowen [1975] 2 N.Z.L.R. 546 and Batty [1978] Q.B. 554. But the law provides no remedy where, as in the present case, there is no allegation of danger, and the claim is simply for the provision of an inferior article.

    [LORD ROSKILL. What is the logic of distinguishing between imminent danger and potential but non-imminent danger?]

    That is the way the law has developed. It is a question of degree. No case has specifically decided that there is a dividing line between harm done by (and beyond) the defective work, and the state of the defective work itself, but there should be no remedy if there is no risk. If it were otherwise, it would be necessary to introduce into the law of delict something approaching warranties in contract (and it is notable that the averments of duty and damages claimed in the present case resemble very much what one would expect in a contract case). There is no justification for that in the authorities. There is no need to extend the law of delict as the pursuers suggest, in view of the existence of a contractual remedy. There would be a problem as to what standard of care to apply. If it were to take reasonable care to reach the standard imposed by the contract, that would be very odd since a stranger to the contract would be suing on the standard specified in it. A similar anomaly would arise in relation to exclusion or limitation of liability clauses in the contract. It could not therefore be the contract which would set the

standard, but the question remains what the standard would be. The whole matter is far too much at large for a court to determine.

    The Second Division also held that in any event the pursuers were entitled to treat the damages as recoverable "economic loss." That cannot be correct. Economic loss is recoverable if it is consequential upon damage or the imminence of damage to the pursuers' property. No such damage is averred. There were cases in which economic loss was recoverable without reference to property damage, but those were cases in which the loss was distinct from the delictual act. Thus in the case of negligent misstatement, damages are given not in order to put the advice right, but to compensate for damage sustained by reliance on the advice, whereas in the present case the damages would be given to put the work right. The disruption to business would be merely consequential upon the replacement of the flooring.

    Argued for the respondents;–The defenders have accepted that the first branch of Lord Wilberforce's principle in Anns v. Merton London Borough Council [1978] A.C. 728, 751, is satisfied, and that there was a relationship of close proximity between the pursuers and defenders. A prima facie duty of care therefore arose, in accordance with Lord Atkin's neighbour principle in Donoghue v. Stevenson [1932] A.C. 562. The law of delict applies irrespective of whether what is averred is economic damage, personal injury, or damage to property: Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 1004, 1026, per Lord Reid. The question is whether, in the words of the second branch of Lord Wilberforce's principle, there are special circumstances which ought to negative or reduce or limit the scope of the duty. It has been conceded that damages are recoverable if damage is caused to corporeal property other than the thing constructed itself. There is no reason in logic or principle why damages should not be recoverable for damage to the thing itself as well. There is nothing in the cases to bar such recoverability.

    In Dutton v. Bognor Regis Urban District Council [1972] 1 Q.B. 373, the damage was to the house itself. It would appear from the award that Mrs Dutton was given not only the cost of repairs to the defective house, but also £500 for diminution in value. Lord Denning M.R. dealt with the case on the basis that the defect was dangerous, but not the other members of the Court. Sachs L. J., at p. 403, indicated that physical damage was not necessary, and that if it was necessary, it was sufficient that the house itself had suffered damage. Stamp L.J. at p. 414D envisaged recovery for economic damage by virtue of buying a useless thing. There is no reason why the purchaser of a ginger beer bottle which in fact contains water should not recover damages.

    Similarly, it is clear that in Bowen v. Paramount Builders (Hamilton) Ltd. [1975] 2 N.Z.L.R. 546 the question was whether there had been actual physical damage to the building itself caused by a latent defect. It was not said that there had to be an external risk. In Batty v. Metropolitan Property Realisations Ltd. [1978] Q.B. 554, the liability in question, unlike in Dutton and Anns, was directly that of the builder. The test proposed was whether there had been physical damage to the property; see per Megaw L.J. at p. 571, and Bridge L.J. at p. 572.

    It is therefore enough, for the right to damages to arise in delict, that there should have been physical damage to the thing constructed. If, however, that is wrong, and physical damage in the relevant sense has not occurred because the damage is "internal," the second submission is that it is sufficient that there should have been economic damage.

    The starting point again is Lord Atkin's duty to take reasonable care to avoid acting so as to cause injury to one's neighbour: Donoghue v. Stevenson [1932] A.C. 562. Lord Reid in Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 1004 said that an analogous principle applied to economic loss. In Anns v. Merton London Borough Council [1978] A.C. 728, Lord Wilberforce specifically mentioned economic loss in the context of the prima facie duty to take care, given the requisite degree of proximity.

    The first question is what is the nature of Lord Atkin's injury to one's

neighbour. In Donoghue v. Stevenson itself it was only personal physical injury, and for a time thereafter it was regarded as so limited. But later it was extended to damage to physical property. Physical property is only a species of property. There is no difference in principle between injury to physical property and injury to a bank balance: both involve diminution of the pursuer's estate. In Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465, the question was purely one of financial loss. The respondents contended that a claim for financial loss was not sustainable unless it flowed from physical loss. Lord Reid did not mention the point specifically, and concentrated on the limitations of liability for negligent misstatement, but the other members of the House of Lords rejected the respondents' contention and held that where a duty of care existed, liability for financial loss was not tied to physical injury: see pp. 494, 497, 506, 514, 516, 526, 528 and 538. The position reached so far was, therefore, that where there was a sufficient relationship of proximity, and perhaps reliance by the pursuer on the defender, there was liability for economic loss.

    Ministry of Housing and Local Government v. Sharp [1970] 2 Q.B. 223 was the first case where there was no reliance in the narrow sense (which is not, however, the present case). The Court of Appeal took the view that liability in delict arose where there was (a) proximity and (b) reasonable foresee-ability that financial loss might occur if care was not taken. In Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] Q.B. 27, on the other hand, recovery for "pure" economic loss was not allowed. It is submitted that the majority in that case were wrong, and Edmund-Davies L.J.'s conclusion at p. 46D is to be preferred. In any event, there was no relationship of proximity between the parties. The decision in Dynamco Ltd. v. Holland & Hannen and Cubitts (Scotland) Ltd., 1971 S.C. 257, which was very similar to the majority conclusion in Spartan Steel, is also wrong. The Canadian case of Seaway Hotels Ltd. v. Cragg (Canada) Ltd. (1959) 21 D.L.R. (2d) 264 went the opposite way, and all the loss suffered by virtue of the cutoff of the electricity supply was held recoverable. See also Gypsum Carrier Inc. v. The Queen (1977) 78 D.L.R. (3d) 175 and Colgan v. Connolly Construction Co. (Ireland) Ltd. (unreported), 29th February 1980 (High Court of Ireland), where financial loss cases such as Hedley Byrne and Dorset Yacht were not cited, and there was no reference to the idea put forward in Anns v. Merton London Borough Council [1978] A.C. 728 that where negligence causing economic loss was involved, the tendency was to apply principles analogous to Donoghue v. Stevenson.

    Caltex Oil (Australia) Pty. Ltd. v. The Dredge Willemstad (1976) 136 C.L.R. 529 should be seen as an attempt to define proximity for the purpose of setting a limit to recovery for economic loss. It was suggested (although the approaches of the judges vary) that the duty was owed to particular persons who it was known would be affected by the defendant's default, and did not extend to members of an unidentified or unascertained class. The pursuers are content to accept that definition of proximity. Whatever limitation is put on it, they must come within it since the relationship between a building owner and a sub-contractor nominated by him is very close indeed. Caltex Oil was considered in Ross v. Caunters [1980] Ch. 297, where there was held to be a duty to one identified person. However, in Ministry of Housing and Local Government v. Sharp [1970] 2 Q.B. 223, referred to by Sir Robert Megarry V.-C. in Ross v. Caunters, the duty is not so restricted. In JEB Fasteners Ltd. v. Marks, Bloom & Co. [1981] 3 All E.R. 289 a definite class of persons was contemplated, so that on that authority the duty can extend to a class. See also Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 1004, 1027C, per Lord Reid and, generally, Schiffahrt & Kohlen G.m.b.H. v. Chelsea Maritime Ltd. [1982] Q.B. 481.

    A number of possible tests for determining the limitations to be placed on the right of recovery for economic loss are suggested by the cases. (1) Is there a sufficient degree of proximity between the parties: Anns v. Merton London Borough Council

[1978] A.C. 728; Caltex Oil (Australia) Pty. Ltd. v. The Dredge Willemstad, 136 C.L.R. 529, 575, per Stephen J.; Ministry of Housing and Local Government v. Sharp [1970] 2 Q.B. 223, 280, per Salmon L. J. (2) To determine further what proximity is, other factors are identified. In particular, is the plaintiff someone who was in the contemplation of the defendant as an individual or member of an ascertained class who would suffer loss, at the time the duty arose? (Looking not so much to the duty as to damages), was economic loss a reasonably foreseeable and direct loss? See per Edmund-Davies L.J. in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] Q.B. 27.

    The cases also show that there are four classes of factual circumstances where pecuniary loss which is negligently caused is recoverable: (1) where there is personal injury, and pecuniary loss consequential thereon; (2) where there is damage to property other than the thing itself, and consequential pecuniary loss; (3) where there is a threat of such damage or injury, and pecuniary loss in taking steps to remove it; and finally (4) where pecuniary loss is sustained in consequence of an act of the defender in circumstances where it is at least foreseeable to him that pecuniary loss will be caused to those who in his reasonable contemplation will rely on that act. For the fourth class, see Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465; Yianni v. Edwin Evans & Sons [1982] Q.B. 438, 454-6 and Arenson v. Arenson [1977] A.C. 405, 419, 434, 438 and 442. Moving on from reliance, an action will also lie where pecuniary loss has been sustained in consequence of an act or omission of a defender in circumstances in which it was at least foreseeable that pecuniary loss would be caused by such act or omission. There was no question of reliance in Ross v. Caunters [1980] Ch. 297, 310A, 322, per Sir Robert Megarry V.-C. If, per contra, reliance is necessary, it is amply averred.

    In conclusion, a manufacturer producing a thing that is defective or useless should be liable in delict to anyone who is sufficiently proximate. That is the view of P. S. Atiyah: see the last paragraph of his article, "Negligence and Economic Loss," in the Law Quarterly Review (1967) 83 L.Q.R. 248, 276. See also Diamante Sociedad de Transportes S.A. v. Todd Oil Burners Ltd. [1966] 1 Lloyd's Rep. 179. The standard of care must be related to the particular duty. The contract between the manufacturer and the retailer might be of assistance. The presence of a clause in the contract excluding or limiting liability for negligence would not be an answer to a claim for damage to property or personal injury. There is no reason why it should be an argument against recovery for damage to the thing itself. The submission does not involve the spectre of unlimited liability. There is already a limitation in that the duty of care is restricted to the relationship of proximity. The question is whether the House should go further and say that for the purpose of economic loss there is a further restriction to situations where damage is only foreseeable to a particular individual, as seems to have been the view of the majority in Caltex Oil (Australia) Pty. Ltd. v. The Dredge Willemstad, 136 C.L.R. 529.

    At delivering judgment on 15th July 1982,–

    LORD FRASER OF TULLYBELTON.–My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Roskill, and I am in full agreement with his conclusion and with the reasons on which he bases it. I also gratefully adopt his summary of the facts. It is enough for me to say that the appellants (defenders) are specialist sub-contractors who laid composition flooring in a factory that was built for the respondents (pursuers) at Grangemouth between September 1969 and May 1970. The respondents aver that the floor is defective, owing to failure by the

appellants to take reasonable care in laying it, and that it will have to be replaced. There was no contractual relationship between the appellants and the respondents, and for some reason that has not been explained the respondents have not taken legal proceedings against the main contractors with whom they did have a contractual relationship. The respondents have raised this action against the appellants, claiming damages which consist mainly of the direct and indirect cost of replacing the floor, the action being founded on averments that the appellants were negligent in laying the floor. At the present stage of relevancy these averments must be taken as true. The appeal raises an important question on the law of delict or, strictly speaking, quasi delict, which is not precisely covered by authority. The question is whether the appellants having (as must at this stage be assumed) negligently laid a floor which is defective, but which has not caused danger to the health or safety of any person nor risk of damage to any other property belonging to the owner of the floor, may in the circumstances averred by the respondents be liable for the economic loss caused to them by having to replace the floor.

    The Lord Ordinary (Lord Grieve) and the Second Division answered that question in the affirmative, and they have allowed to the respondents a proof before answer. The appellants maintain that the question should be answered in the negative and that the action should be dismissed as irrelevant. As I agree with my noble and learned friend, Lord Roskill, that the appeal fails I only add to his speech in order to deal in my own words with two important matters that arise.

    The first is the concern which has been repeatedly expressed by judges in the United Kingdom and elsewhere, that the effect of relaxing strict limitations upon the area of liability for delict (tort) would be, in the words of Cardozo J., to introduce "liability in an indeterminate amount for an indeterminate time to an indeterminate class." This is the floodgates argument, if I may use the expression as a convenient description, and not in any dismissive or question-begging sense. The argument appears to me unattractive, especially if it leads, as I think it would in this case, to drawing an arbitrary and illogical line just because a line has to be drawn somewhere. But it has to be considered, because it has had a significant influence in leading judges to reject claims for economic loss which were not consequent upon physical danger to persons or other property of the pursuer/plaintiff. It was the main reason for rejecting the claim in the Scottish case of Dynamco Ltd. v. Holland & Hannen & Cubitts (Scotland) Ltd. 1971 S.C. 257, which has recently been followed with some apparent reluctance by the Lord Ordinary (Lord Maxwell) in Wimpey Construction (U.K.) Ltd. v. Martin Black & Co. 1982 S.L.T. 239. The floodgates argument was much discussed by the High Court of Australia in Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad" (1976) 136 C.L.R. 529, where the majority of the Court held that there was sufficient proximity between the parties to justify a claim for economic loss because the defendant knew (in the words of the headnote) "that a particular person, not merely as a member of an unascertained class, [would] be likely to suffer economic loss as a consequence of his negligence." Whether the defenders' knowledge of the identity of the person likely to suffer from his negligence is relevant for the present purpose may with

respect be doubted and it seems to be contrary to the views expressed in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465 by Lord Reid at 482 and by Lord Morris of Borth-y-Gest at 494. But it is not necessary to decide the question in this appeal because the appellants certainly knew, or had the means of knowing, the identity of the respondents for whom the factory was being built. So if knowledge of the respondents' identity is a relevant test, it is one that the appellants can satisfy. They can also satisfy most, if not all, of the other tests that have been suggested as safeguards against opening the floodgates. The proximity between the parties is extremely close, falling only just short of a direct contractual relationship. The injury to the respondents was a direct and foreseeable result of negligence by the appellants. The respondents, or their architects, nominated the appellants as specialist sub-contractors and they must therefore have relied upon their skill and knowledge. It would surely be wrong to exclude from probation a claim which is so strongly based, merely because of anxiety about the possible effect of the decision upon other cases where the proximity may be less strong. If and when such other cases arise they will have to be decided by applying sound principles to their particular facts. The present case seems to me to fall well within limits already recognised in principle for this type of claim, and I would decide this appeal strictly on its own facts. I rely particularly on the very close proximity between the parties which in my view distinguishes this case from the case of producers of goods to be offered for sale to the public.

    The second matter which might be thought to justify rejecting the respondents' claim as irrelevant is the difficulty of ascertaining the standard of duty owed by the appellants to the respondents. A manufacturer's duty to take care not to make a product that is dangerous sets a standard which is, in principle, easy to ascertain. The duty is owed to all who are his "neighbours." It is imposed upon him by the general law and is in addition to his contractual duties to other parties to the contract. It cannot be discharged or escaped by pleading that it conflicts with his contractual duty. But a duty not to produce a defective article sets a standard which is less easily ascertained, because it has to be judged largely by reference to the contract. As Windeyer J. said in Voli v. Inglewood Shire Council (1963) 110 C.L.R. 74, 85, if an architect undertakes "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." Similarly a building constructed in fulfilment of a contract for a price of £100,000 might justly be regarded as defective, although the same building constructed in fulfilment of a contract for a price of £50,000 might not. Where a building is erected under a contract with a purchaser, then provided the building, or part of it, is not dangerous to persons or to other property and subject to the law against misrepresentation, I see no reason why the builder should not be free to make with the purchaser whatever contractual arrangements about the quality of the product the purchaser wishes. However jerry-built the product, the purchaser would not be entitled to damages from the builder if it came up to the contractual standard. I do not think a subsequent owner could be in any better position, but in most cases he would not know the details of the contractual arrangements

and, without such knowledge, he might well be unable to judge whether the product was defective or not. But in this case the respondents, although not a party to the contract with the appellants, had full knowledge of the appellants' contractual duties, and this difficulty does not arise. What the position might have been if the action had been brought by a subsequent owner is a matter which does not have to be decided now.

    For the reasons given by my noble and learned friend, Lord Roskill, and for the additional reasons which I have stated, I would dismiss this appeal.

    LORD RUSSELL OF KILLOWEN.–My Lords, I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lords Fraser of Tullybelton and Roskill. I agree with them and with their conclusion that this appeal fails. In my respectful opinion the view of my noble and learned friend, Lord Brandon of Oakbrook, unnecessarily confines the relevant principles of delict to exclude cases of such immediate proximity as the present.

    LORD KEITH OF KINKEL.–My Lords, the respondents own and occupy a factory in Grangemouth. This factory was constructed for them over a period in 1969 and 1970, under a contract between them and a company called gilvie (Builders) Ltd., which I shall call "the main contractors." The respondents' architects nominated the appellants as specialist subcontractors for the purpose of laying a floor in the main production area of the factory. The appellants entered into a contract with the main contractors for the carrying out of this work.

    According to the respondents' averments the appellants' workmanship was seriously defective in a number of respects, with the result that after two years the floor began to develop cracks over the whole of its surface. They say that it requires replacement in order to avoid the necessity for continual maintenance, which would be more expensive in the long run. They claim against the appellants for the cost of such replacement, together with certain consequential loss which they say they will suffer while the work of replacement is being carried out. The claim is founded in delict, the respondents pleading that they have suffered loss through the appellants' negligence and are entitled to reparation therefor.

    The appellants plead that the respondents' averments are irrelevant. The Lord Ordinary (Lord Grieve), after debate, refused to sustain this plea and allowed a proof before answer. The Second Division (Lord Justice-Clerk Wheatley, Lord Kissen and Lord Robertson) refused a reclaiming motion against the Lord Ordinary's interlocutor. The appellants now appeal to your Lordships' House.

    It is a notable feature of the respondents' pleadings that they contain no averment that the defective nature of flooring has led or is likely to lead to any danger of physical injury to work people or of damage to property, moveable or immoveable, other than the floor surface itself, or even of economic loss through interruption of production processes. The only type of pecuniary consequential loss claimed for is that arising out of the need to replace the flooring. Had there been an averment of any such apprehended danger, I am of opinion that the respondents' case would have been clearly

relevant. There undoubtedly existed between the appellants and the respondents such proximity of relationship, within the well-known principle of Donoghue v. Stevenson [1932] A.C. 562, as to give rise to duty of care owed by the former to the latter. As formulated in Donoghue v. Stevenson, the duty extended to the avoidance of acts or omissions which might reasonably have been anticipated as likely to cause physical injury to persons or property. The scope of the duty has, however, been developed so as to cover the situation where pure economic loss is to be foreseen as likely to be suffered by one standing in the requisite degree of proximity: Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465. That case was concerned with a negligent statement made in response to an inquiry about the financial standing of a particular company, in reliance on the accuracy of which the plaintiffs had acted to their detriment. So the case is not in point here except in so far as it established that reasonable anticipation of physical injury to person or property is not a sine qua non for the existence of a duty of care. It has also been established that where a duty of care exists through the presence of such reasonable anticipation, and it is breached, then even though no such injury has actually been caused because the person to whom the duty is owed has incurred expenditure in averting the danger, that person is entitled to damages measured by the amount of that expenditure: Anns v. Merton London Borough Council [1968] A.C. 728, per Lord Wilberforce at p. 759. That is the principle which in my view underlies Dutton v. Bognor Regis U.D.C. [1972] 1 Q.B. 373 and Batty v. Metropolitan Realisations Ltd. [1978] 1 Q.B. 554. So in the present case I am of opinion that the appellants in the laying of the floor owed to the respondents a duty to take reasonable care to avoid acts or omissions which they ought to have known would be likely to cause the respondents, not only physical damage to person or property, but also pure economic loss. Economic loss would be caused to the respondents if the condition of the floor, in the course of its normal life, came to be such as to prevent the respondents from carrying out ordinary production processes on it, or, short of that, to cause the production process to be more costly than it would otherwise have been. In that situation the respondents would have been entitled to recover from the appellants expenditure incurred in relaying the floor so as to avert or mitigate their loss. The real question in the appeal, as I see it, is whether the respondents' averments reveal such a state of affairs as, under the principles. I have outlined, gives them a complete right of action. I am of opinion that they have relevantly averred a duty of care owed to them by the appellants, though I think their averments in this respect might have been more precise and better related to the true legal position. It is the averments of loss which cause me some trouble. On the face of it, their averments might be read as meaning no more than that the respondents have got a bad floor instead of a good one and that their loss is represented by the cost of replacing the floor. But they do also aver that the cost of maintaining the floor which they have got is heavy, and that it would be cheaper to take up the floor surface and lay a new one. If the cost of maintaining the defective floor is substantially greater than it would have been in respect of a sound one, it must necessarily follow that their manufacturing operations are being carried on at a less profitable level than would otherwise have been the case, and that they

are therefore suffering economic loss. That is the sort of loss which the appellants, standing in the relationship to the respondents which they did, ought reasonably to have anticipated as likely to occur if their workmanship was faulty. They must have been aware of the nature of the respondents' business, the purpose for which the floor was required, and the part it was to play in their operations. The appellants accordingly owed the respondents a duty to take reasonable care to see that their workmanship was not faulty, and are liable for the foreseeable consequences, sounding in economic loss, of their failure to do so. These consequences may properly be held to include less profitable operation due to the heavy cost of maintenance. In so far as the respondents, in order to avert or mitigate such loss, incur expenditure on relaying the floor surface, that expenditure becomes the measure of the appellants' liability. Upon that analysis of the situation, I am of opinion that the respondents have stated a proper case for inquiry into the facts, and that the Lord Ordinary and the Second Division were therefore right to allow a proof before answer. I would accordingly dismiss the appeal.

    Having thus reached a conclusion in favour of the respondents upon the somewhat narrow ground which I have indicated, I do not consider this to be an appropriate case for seeking to advance the frontiers of the law of negligence upon the lines favoured by certain of your Lordships. There are a number of reasons why such an extension would, in my view, be wrong in principle. In the first place, I am unable to regard the deterioration of the flooring which is alleged in this case as being damage to the respondents' property such as to give rise to a liability falling directly within the principle of Donoghue v. Stevenson (supra). The flooring had an inherent defect in it from the start. The appellants did not, in any sense consistent with the ordinary use of language or contemplated by the majority in Donoghue v. Stevenson, damage the respondents' property. They supplied them with a defective floor. Such an act can, in accordance with the views I have expressed above, give rise to liability in negligence in certain circumstances. But it does not do so merely because the flooring is defective or valueless or useless and requires to be replaced. So to hold would raise very difficult and delicate issues of principle having a wide potential application. I think it would necessarily follow that any manufacturer of products would become liable to the ultimate purchaser if the product, owing to negligence in manufacture, was, without being harmful, in any way useless or worthless or defective in quality so that the purchaser wasted the money he spent on it. One instance mentioned in argument and adverted to by Stamp L.J. in Dutton v. Bognor Regis U.D.C. (supra) at p. 415, was a product purchased as ginger beer which turned out to be only water, and many others may be figured. To introduce a general liability covering such situations would be disruptive of commercial practice, under which manufacturers of products commonly provide the ultimate purchaser with limited guarantees usually undertaking only to replace parts exhibiting defective workmanship and excluding any consequential loss. There being no contractual relationship between manufacturer and ultimate consumer, no room would exist, if the suggested principle were accepted, for limiting the manufacturer's liability. The policy considerations which would be involved in introducing such a state of affairs appear to me to be such as a court of law cannot properly

assess, and the question whether or not it would be in the interests of commerce and the public generally is, in my view, much better left for the legislature. The purchaser of a defective product normally can proceed for breach of contract against the seller who can bring his own supplier into the proceedings by third party procedure, so it cannot be said that the present state of the law is unsatisfactory from the point of view of available remedies. I refer to Young & Marten Ltd. v. M'Manus Childs Ltd. [1969] A.C. 454. In the second place, I can foresee that very considerable difficulties might arise in assessing the standards of quality by which the allegedly defective product is to be judged. This aspect is more fully developed in the speech to be delivered by my noble and learned friend, Lord Brandon of Oakbrook, with whose views on the matter I respectfully agree.

    My Lords, for the reasons which I have given I would concur in the dismissal of the appeal.

    LORD ROSKILL.–My Lords, this appeal against an interlocutor of the Second Division of the Court of Session (the Lord Justice-Clerk, Lord Kissen and Lord Robertson) dated 1st September 1980 refusing a reclaiming motion against an interlocutor of the Lord Ordinary (Lord Grieve) dated 22nd November 1979 raises a question of fundamental importance in the law of delict. Since it was accepted in the courts below and in argument before your Lordships' House that there was no relevant difference between the Scots law of delict and the English law of negligence, it follows that this appeal equally raises a question of fundamental importance in the development of the latter law. The defenders, the appellants before your Lordships' House, tabled a general plea to the relevance of the pursuer's averments and it was that plea which was debated in both courts below. The appellants contended that there was no averment in the pursuers' pleadings relevant to found an action against the defenders in delict and that therefore the action should be dismissed as irrelevant. The respondents, on the other hand, contended that proof before answer should be allowed. Both courts below allowed proof before answer. The learned Lord Ordinary started his opinion by stating that there was no Scottish authority directly in point and while in argument before your Lordships' House much Scottish, English and indeed Commonwealth authority was cited, it remains the fact that no decision in any court that was cited to your Lordships conclusively shows the correct route to be taken, though many may be said greatly to illuminate that route.

    My Lords, since the appeal comes before your Lordships' House in the manner I have just stated, it follows that the respondents' averments, alleged not to state a relevant case, must be assumed for present purposes to be correct. Those averments are fully set out in the record and in the opinion of the Lord Ordinary and to avoid repetition, I gratefully borrow his statement of them. I need only summarise the bare essentials. The appellants are specialist contractors in the laying of flooring. They were nominated sub-contractors under a main building contract concluded between the respondents and some main contractors. There was no privity of contract between the appellants and the respondents. The appellants laid flooring in the production area of a factory which was being built for the respondents at Grangemouth as long ago as 1969 and 1970. In 1972 it is

averred that that flooring showed defects allegedly due either to bad workmanship or bad materials or both. At the time the pleadings were prepared no repair work had been carried out but it was averred that the cost of repairs would be some £50,000 to which added certain figures which, as the Lord Ordinary said, might reasonably be described as items of economic or financial loss. The total sum claimed by the respondents was over £200,000.

    My Lords, your Lordships are thus invited to deal with events which happened long ago. It is difficult to believe that in the intervening period some work has not been done to this flooring but no information was vouchsafed as to the course of subsequent events. The main building contract was not exhibited in the courts below. Your Lordships were not told whether that contract included as between the main contractors and the respondents any relevant exceptions clause, nor whether if there were such an exceptions clause it might be available for the benefit of the appellants. Nor were your Lordships told why the respondents had chosen to proceed in delict against the appellants rather than against the main contractors in contract, nor indeed why the main contractors had not been joined as parties to these proceedings. This economy of fact is in stark contrast to the wealth of citation of authority of which your Lordships have had the benefit. Thus the bare point of law has to be decided upon an assumption of the truth of the facts pleaded. But I cannot but suspect that the truth regarding the supposed deficiencies of this flooring at Grangemouth has long since been either established or disproved. Of those matters, however, your Lordships know and have been told nothing. Half a century ago your Lordships' House decided Donoghue v. Stevenson [1932] A.C. 562 upon a similar plea of irrelevancy. In that case, however, some three and three-quarter years only had elapsed between the purchase of the allegedly offending bottle of ginger beer and the decision of your Lordships' House.

    My Lords, there was much discussion before your Lordships' House as to the effect of the pleadings. I see no need to discuss them in detail. They seem to me clearly to contain no allegation that the flooring was in a dangerous state or that its condition was such as to cause danger to life or limb or to other property of other persons or that repairs were urgently or imminently required to avoid any such danger, or that any economic or financial loss had been, or would be, suffered save as would be consequential upon the ultimate replacement of the flooring, the necessity of which was averred in Condescendence VII. The essential feature of the respondents' pleading was that it advanced a claim for the cost of remedying the alleged defects in the flooring itself by replacement together with resulting or economic or financial loss consequential upon that replacement.

    My Lords, it was because of that scope of the respondents' pleading and that that pleading was limited in this way that the appellants were able to mount their main attack upon those pleadings and to contend that they were, at least in the absence of amendment, for which no leave has been sought at any stage, irrelevant since the law neither of Scotland nor of England made the appellants liable in delict or in negligence for the cost of replacing this flooring or for the economic or financial loss consequent upon

that replacement. It was strenuously argued for the appellants that for your Lordships' House now to hold that in those circumstances which I have just outlined the appellants were liable to the respondents would be to extend the duty of care owed by a manufacturer and others, to whom the principles first enunciated in Donoghue v. Stevenson have since been extended during the last half century, far beyond the limits to which the courts have hitherto extended them. The familiar "floodgates" argument was once again brought fully into play. My Lords, although it cannot be denied that policy considerations have from time to time been allowed to play their part in the last century and the present either in limiting or in extending the scope of the tort of negligence since it first developed as it were in its own right in the course of the last century, yet today I think its scope is best determined by considerations of principle rather than of policy. The "floodgates" argument is very familiar. It still may on occasion have its proper place but if principle suggests that the law should develop along a particular route and if the adoption of that particular route will accord a remedy where that remedy has hitherto been denied, I see no reason why, if it be just that the law should henceforth accord that remedy, that remedy should be denied simply because it will, in consequence of this particular development, become available to many rather than to few.

    My Lords, I think there is no doubt that Donoghue v. Stevenson by its insistence upon proximity, in the sense in which Lord Atkin used that word, as the foundation of the duty of care which was there enunciated, marked a great development in the law of delict and of negligence alike. In passing it should be noted that Lord Atkin emphasised at p. 579 of the report that the laws of Scotland and of England were in that case, as is agreed in the present, identical. But that advance having been thus made in 1932, the doctrine then enunciated was at first confined by judicial decision within relatively narrow limits. The gradual development of the law will be found discussed by the learned editor of Salmond on Torts, (18th ed. 1931) at pp. 289 et seq. Though initially there is no doubt that because of Lord Atkin's phraseology at p. 599 of the report in Donoghue v. Stevenson, "Injury to the consumer's life or property," it was thought that the duty of care did not extend beyond avoiding physical injury or physical damage to the person or the property of the person to whom the duty of care was owed, that limitation has long since ceased as Professor Heuston points out in the passage to which I have just referred.

    My Lords, in discussion upon the later developments of the law the decision of your Lordships' House (albeit by a majority) in Morrison Steamship Co. v. Greystoke Castle (Cargo Owners) [1947] A.C. 265, is sometimes overlooked. The facts were essentially simple. Two ships collided. For simplicity I will call them A and B. Both ships were to blame albeit in unequal proportions. The owners of the cargo on ship A became liable to contribution in general average to the owners of ship A. The cargo owners then used ship B to recover the relevant proportion of that liability for general average contribution. They succeeded in that claim. My Lords, I shall not quote extensively from the speeches of either the majority or of the minority. Suffice it to say that here the recovery of economic loss was allowed and I do not think that the decision is to be explained simply upon

some supposed esoteric mystery appertaining to the law regarding general average contribution. It is true that there seems to be little discussion in the speeches regarding the extent of the duty of care but the very rejection by the majority of the views expressed by Lord Simonds in his dissenting speech that "nothing would justify me in holding that the cargo owner can recover damages from the wrong doing ship not because his cargo has suffered damage but because he has been placed under an obligation to make a general average contribution' (see p. 307) shows that Lord Simonds at least was appreciating the consequences of the step forward which the majority were then taking. The decision is indeed far from the previously limited application of the doctrine enunciated in Donoghue v. Stevenson.

    Fifteen years later in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465, your Lordships' House made plain that the duty of care was not limited in the manner for which the respondents in that appeal had contended. Your Lordships' House held without doubt the economic loss was recoverable without physical damage having been suffered provided that the relevant duty of care had existed and that that duty existed when the party, to whom the allegedly negligent advice was given, relied upon the "judgment" or "skill" (I take those two words from the speech of Lord Morris of Borth-y-Gest at p. 503) of him who gave the advice. I draw attention without citation to a passage of Lord Hodson at p. 509 where he refers to the Greystoke Castle case. Two passages in the speech of Lord Devlin at p. 529, however, demand quotation in full. The noble and learned Lord said this:–"I have had the advantage of reading all the opinions prepared by your Lordships and of studying the terms which your Lordships have framed by way of definition of the sort of relationship which gives rise to a responsibility towards those who act upon information or advice and so creates a duty of care towards them. I do not understand any of your Lordships to hold that it is a responsibility imposed by law upon certain types of persons or in certain sorts of situations. It is a responsibility that is voluntarily accepted or undertaken, either generally where a general relationship, such as that of solicitor and client or banker and customer, is created, or specifically in relation to a particular transaction …"

    Later at p. 530 Lord Devlin said:–"I shall therefore content myself with the proposition that wherever there is a relationship equivalent to contract, there is a duty of care. Such a relationship may be either general or particular. … I regard this proposition as an application of the general conception of proximity. Cases may arise in the future in which a new and wider proposition, quite independent of any notion of contract, will be needed. There may, for example, be cases in which a statement is not supplied for the use of any particular person, any more than in Donoghue v. Stevenson the ginger beer was supplied for consumption by any particular person; and it will then be necessary to return to the general conception of proximity and to see whether there can be evolved from it, as was done in Donoghue v. Stevenson, a specific proposition to fit the case. …"

    My Lords, it was, as I think, this development of the law which led Lord Reid in Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 1004 at pp. 1026–7 to say:–"In later years there has been a steady trend towards regarding the law of negligence as depending on principle so that, when a new point

emerges, one should ask not whether it is covered by authority but whether recognised principles apply to it. Donoghue v. Stevenson may be regarded as a milestone, and the well-known passage in Lord Atkin's speech should I think be regarded as a statement of principle. 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 vital explanation for its exclusion. … But where negligence is involved the tendency has been to apply principles analogous to those stated by Lord Atkin. …"

    Similarly in Anns v. Merton London Borough Council [1978] A.C. 728, Lord Wilberforce approving the earlier decisions of the Court of Appeal in Dutton v. Bognor Regis Urban District Council [1972] 1 Q.B. 373 and Sparham-Souter v. Town and Country Developments (Essex) Ltd. [1976] Q.B. 858, said of the trilogy of cases, Donoghue v. Stevenson, Hedley Byrne, and Dorset Yacht at pp. 751–2:–"…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. …"

    Applying those statements of general principle as your Lordships have been enjoined to do both by Lord Reid and by Lord Wilberforce rather than to ask whether the particular situation which has arisen does or does not resemble some earlier and different situation where a duty of care has been held or has not been held to exist, I look for the reasons why, it being conceded that the appellants owed a duty of care to others not to construct the flooring so that those others were in peril of suffering loss or damage to their persons or their property, that duty of care should not be equally owed to the respondents who, though not in direct contractual relationship with the appellants, were as nominated sub-contractors in almost as close a commercial relationship with the appellants as it is possible to envisage short of privity of contract, so as not to expose the respondents to a possible liability to financial loss for repairing the flooring should it prove that that flooring had been negligently constructed. It is conceded that if the flooring had been so badly constructed that to avoid imminent danger the respondents had expended money upon renewing it the respondents could have recovered the cost of so doing. It seems curious that if the appellants' work had been so bad that to avoid imminent danger expenditure had been incurred the respondents could recover that expenditure, but that if the work was less badly done so that remedial work could be postponed they cannot do so. Yet this is seemingly the result of the appellants' contentions.

    My Lords, I have already said that there is no decided case which clearly

points the way. But it is, I think, of as