The answer to the question is not easy. The short answer is that the cause of action in any tort claim accrues at the date when the damage occurs. The problem is to say precisely when that was. A practitioner who works in the area would be able to name the principles to be applied with no difficulty. For the non-specialist or the student, the rules can be confusing, so I start with a restatement of the basics, and ask for the patience of readers who are familiar with them.

Pure economic loss? An arbitrary distinction. Before we can decide when the damage occurred, we need to know what kind of damage we are dealing with - how does the law categorize the damage? We need to decide whether we dealing with physical damage or 'pure economic loss.' This can be the hardest problem. The reason it is hard is that the concept of pure economic loss is a blunt instrument. Judges understand very well, and sometimes say, that the law has to draw a line somewhere between wrongs for which the law of tort provides a remedy and wrongs for which it does not, and in the end that line is somewhat arbitrary. The real motivations for setting the boundaries of recoverable loss are rooted in policy. The concept of 'pure economic loss' is merely one of the technical tools which courts use to draw that line. This is illustrated par excellence in Murphy v. Brentwood D.C. [1991] AC 398. Here is not the place to rehearse the history of this well-known chapter in English tort law. In short, owners of faulty buildings had been successfully suing local councils whose building inspectors had negligently failed to prevent sub-standard building work. The result was that local councils became a publicly funded insurer of last resort for collapsing buildings. In Murphy the House of Lords put a stop to this situation. The motive for stopping it was plainly a feeling that it was bad policy to make local councils fulfil this role. The route to the desired result, which involved overruling an earlier House of Lords decision, was to say that the cracks in the buildings, provided they did not cause injury or damage to other property, were pure economic loss. The cracks or similar damages, so the argument went, merely meant that the building's owner had to find the money to repair them, and prevent them leading to injury to any person or property, and hence the building's owner had suffered economic loss and no other kind of loss. Moreover, there was not sufficient proximity between the building inspectors and the house buyers to bring such cases within the Hedley Byrne principle, so the building's owner, the house buyer, could not recover for pure economic loss. Therefore, the buyers of problem houses could no longer claim from councils for the cost of repairs.

Whilst it not suggested that there was any better solution to the issue which faced the House of Lords in Murphy, taking a decision where the legal reasoning and the real motivation for the decision are different is a recipe for a lack of clarity in the law. If your house develops cracks because some professional has been negligent, then the question of whether those cracks are physical damage or economic loss is a vacuous technicality, whereas the real reason the law refuses a remedy against the building inspectors (councils should not have to pick up the tab for poor quality building work) does make some sense, however unwelcome to the claimant.

The danger of the concept of pure economic loss descending into meaninglessness is illustrated by D & F Estates v Church Commissioners [1989] AC 177. In short, the plaintiffs there complained that the plaster was falling off the walls of their new flats. The plasterers had failed to follow the instructions on the packet. That is why the plaster was not sticking to the walls properly. The House of Lords said that this was pure economic loss (so not recoverable, unless there was the necessary proximity between the parties to engage the Hedley Byrne principle). If the plaster fell in someone’s eye and injured it that would not be pure economic loss. If it fell inside a valuable piano and damaged it, that would be physical damage. Presumably if a collection of antique plates fell from the wall when the plaster crumbled, that would be physical damage. Could the building owner claim for physical loss in the case of the loss of a valuable mural painted on the plaster which subsequently crumbled? Or for the cost of the ordinary house paint on the crumbling plaster? The example in this case illustrates the artificiality of distinguishing a crack in a building as pure economic loss and not physical damage.

Date of damage? A second arbitrary distinction.. Again a line has to be drawn somewhere, when deciding precisely when time starts to run for the purpose of limitation. Whether the damage is physical or purely economic, for or the purpose of limitation we need to be able to say when loss occurs. There seems no way around the arbitrariness of putting a precise date on that. If the claimant's lawyers have decided to pursue a claim for physical damage, then the date of damage could be the date the building was made faulty by builders who followed the engineers flawed plans for remedial work. There again you could say the damage does not occur until the faults manifest themselves as cracks serious enough to need further repairs. If on the other hand the claimant's lawyers decide that the cracks are pure economic loss, the question will be, when was the claimant out of pocket? When he spent money on builders to execute the faulty plans? Perhaps not until the cracks were big enough to lower the value of the house in the market.

The question reaches the Court of Appeal. In Abbott v. Will Gannon [2005] EWCA Civ 198 the Court of Appeal had to face these problems. The claimants noticed that the wall above their bay window was starting to come down. They employed the defendant engineers to tell them how to make it safe. The engineers gave them some plans, and the claimants paid builders to strengthen their building using those plans. Later, they noticed new cracks, and argued it was the engineers' fault. For reasons which are not clear, the claimants and / or their solicitors waited until limitation for a contract claim had expired before issuing proceedings. Therefore, it is principally a tort claim. Were the cracks physical damage or pure economic loss? In one sense it does not matter: there was enough proximity between the claimants and the defendant engineers for pure economic loss to be recoverable. But in this case it matters, because the parties and court need to know whether this is physical damage or pure economic loss as the first step in deciding when limitation started to run.

The logic of Murphy, discussed above, is that this kind of loss is pure economic loss. However, another House of Lords case, Pirelli General Cable Works Ltd. v Oscar Faber & Partners [1983] 2 AC 1, on near identical facts to Abbott v Gannon, said that the cracks in the wall were physical damage, and that the damage occurred when the cracks appeared. The Deputy District Judge, trying a limitation argument as a preliminary point, had followed Pirelli. The case went straight to the Court of Appeal, which agreed with the District Judge that the case was on all fours with Pirelli, which is of course binding, and that Pirelli had not been overruled by Murphy.

Practical guidance. The Court of Appeal treated the problem rather briefly, and indicated that it needed the attention of the House of Lords. However, unless and until the case goes to the Lords practitioners (and students writing essays on tort law), when they deal with cases of this kind, need to bear in mind the lack of clarity in the distinction between physical damage and pure economic loss. First, one must ask, is this a case where the cracks or other damage to the buildings counts as pure economic loss? How confident can we be in the answer? In the light of the uncertainty expressed by the Court of Appeal in Abbot v Gannon, and the possibility that that case will go to the Lords, a wise practitioner will in some cases need to be ready for the answer to go either way. If the cracks turn out to be physical damage, Pirelli says that the date of damage is the date cracks first appear. If the cracks turn out to be pure economic loss there is room for argument, and the question is beyond the scope of the present article, but the probable answer will be that the date of damage is the date when the building’s value fell as a consequence.

What Should the House of Lords do? The temptation for the House of Lords, if it has to dispose of Abbot v Gannon, may be to overrule Pirelli, to say that the cracks in the wall constitute pure economic loss, and then to decide on the date at which that loss occurs. On the date of such economic loss, the House of Lords is likely to agree with the Court of Appeal that it occurs when the value of the building is affected by it. However, the concept of pure economic loss remains unsatisfactory. A negligent engineer causes a dangerous crack in your house. How many lay persons, applying common sense, would call that economic loss and not physical damage? If the engineers cause your wall which they are working on to crack that is presumably economic loss. If they cause the adjoining wall to crack, what then? If they cause the neighbour’s wall to crack, what then? If the cause the wall to collapse and damage a swimming pool, being part of the same property, what then? Describing crumbling masonry as 'pure economic loss' is confusing, illogical, and bound to lead to problems. Ideally the House of Lords will find ways to restrict the confusing use in Murphy of the concept of pure economic loss, as far as possible, to the peculiar facts of Murphy and cases like it, though precisely how that is to be done is matter for further thought.

Dr John Birchall - Professional English, Legal English, and Common Law Training