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Abbott & Anor v Will Gannon & Smith Ltd
Pirelli Remains Good Law

In the landmark case of Bank of East Asia Limited v Tsien Wui Marble Factory Limited and others, it was held by the Court of Final Appeal that the cause of action in tort (for defective cladding) accrued when physical damage in a real and substantial sense first occurred, not when the damage was discovered or should, with reasonable diligence have been discovered or when the building was completed or paid for. The case of Pirelli General Cable Works Ltd v Oscar Faber & Partners was applied. In the recent English case of Abbott & Anor v Will Gannon & Smith Ltd, a similar approach was taken by the UK Court of Appeal.

In the Abbott case, the claimants owned a hotel in Torquay. In May 1995, they retained a consulting structural and civil engineering firm to design the work necessary to remedy structural defects in a large bay window of the hotel. Remedial work to the window based upon the design was completed in March 1997 and in late 1999, the claimants first noticed that the lintel over the window had moved and cracked the surrounding structure. Further remedial works costing approximately £20,000 were subsequently carried out.

In September 2003, the claimants commenced proceedings against the engineers in both contract and tort. It was accepted by the parties that the contract claim was time barred and that the concurrent claim in tort would also be time barred if the cause of action accrued more than 6 years before the issue of the claim. Consequently, the issue to be determined was when the cause of action in tort accrued.

The claimants contended that the decision in Pirelli General Cable Works Ltd v Oscar Faber & Partners applied and the cause of action against the consulting engineer for negligent design accrued when the physical damage to the building first appeared, namely in late 1999. In contrast, the engineers contended that the decision in Murphy v Brentwood DC was inconsistent with Pirelli and Pirelli should no longer be followed. The engineers contended that based upon the decision in Murphy, the cause of action accrued when the building owner suffered economic loss, namely when the work was completed in March 1997.

The limitation point was dealt with as a preliminary issue and appealed to the Court of Appeal. The Court held that the decision in Murphy had not expressly or impliedly overruled the decision in Pirelli. Consequently, the cause of action in negligence against the consulting engineer in respect of latent defects arose when physical damage to the building first occurred. As a result, the claim was not time barred.

The Court further held that even if the above analysis was incorrect, it was not bound by Pirelli and if the claimant's cause of action accrued at the time they suffered economic loss, then such loss only occurred when it manifested itself in some way which would affect the value of the building, measured either by cost of repairs or by depreciation in market value. As such, the court rejected the engineer's argument that economic loss was suffered when the negligent works were completed and preferred the approach of the Privy Council in Invercargill City Council v Hamlin. On that basis, the loss manifested itself when the cracks appeared and the claim would have been made in time.