Month: March 2016

The issue of liability for negligent and inspection and certification of new houses has been widely debated since the introduction of the Building Control (Amendment) Regulations, 2014.  The potential liability for certifiers gave rise to a good deal of concern before the Regulations were introduced, and for good reason.  There is a substantial risk that a negligent certifier will be held liable for the cost of putting right defects to a house in the event of negligent inspection or certification.   This is the issue that was before O’Malley J in the High Court in the February 2016 decision in McGee v Alcorn.

The plaintiffs, Mr. and Mrs. McGee, bought a house in 2008 for €430,000.  Alcorn was the building contractor, and Friel was the architect technician who issued certificates confirming that he had inspected the construction of the house, that the foundations and ground conditions were satisfactory and suitable, and that the house complied with the Building Regulations.

The foundations, in fact, had been built so badly that the house began to crack and tilt.  The engineer retained by the McGees to inspect the damage to their house described the workmanship as ‘pathetically bad’; the court described the house as having been built on a  ‘bizarrely defective’ foundation; two of the house’s windows were not built on any foundation, and the house was built on ‘made-up’ ground, not suitable for building.

Alcorn, at the time of the judgment, had left the country and had a judgment in default marked against him.  This left Friel carrying the liability for the entire loss.

The case is of interest to construction professionals and their advisers for a number of reasons.

Firstly, the court had no difficulty in finding that the technician owed a duty of care to the purchasers of the house, although there was no contract between them.    For this purpose the court adopted the traditional test of negligence, finding that there was proximity between the McGees and Friel, that the loss to the McGees was reasonably foreseeable, and that it was fair, just and reasonable to impose a duty of care to purchasers

‘on persons such as engineers and architects who provide certificates of this nature to builders.  Most people buying a modern house, and most of the lenders to whom they will go for mortgages, will require such certificates and will rely upon them.  Self-certification by a builder does not seem a realistic alternative.  It is simply untenable to suggest that the person who holds himself out as professionally qualified to assess, and in a position to certify, the quality of the house and the workmanship of its construction, should not thereby be required to take care in giving such certification’.

The defendant’s counsel had argued that the cost of repairing the house was ‘economic loss’, which is not recoverable under the law of negligence, except in limited circumstances.      The court, however, found that those circumstances existed, as the case, although argued as a claim in negligence, effectively amounted to a claim in negligent misstatement, for which economic loss is recoverable.

The court awarded €129,000 in damages for repair of the house; €38,525 for reinstatement of finishes and redecoration; €75,000 for the reduction in value to the house caused by the permanent ’tilt’; €11,000 for replacement of chimneys, and €25,000 in respect of distress and inconvenience during the works, which was exacerbated by the fact that the plaintiffs and their three young children continued to live in it during the construction works.

A striking feature of this case is that it related to a rural ‘once-off’ house, singled out for exemption for building control by SI 365/2015 and widely welcomed by politicians, particularly in rural areas.  (http://paulconnaughton.ie/2015/07/29/easing-of-building-regulations-welcome/) I criticised this exemption in my letter to the Irish Times here.

 

The request made by the Irish Supreme Court for a preliminary ruling in this case is now before the European Court of Justice for consideration (Case 613/14). For each case that comes before the ECJ, an opinion is given by an Advocate General on the questions raised. The Advocate General’s opinion is not always followed by the ECJ, but is often persuasive not only in the instant case but also in subsequent cases.

The nub of the questions put to the ECJ by the Supreme Court was as follows:

1. Does the European Court of Justice have jurisdiction to interpret the text of a harmonised national standard (IS 13242:2002) which was itself based on a standard of the European Committee for Standardisation (CEN) (EN 13242:2002)?

2. Is the Irish Supreme Court obliged not to apply implied terms of merchantability and fitness for purpose or quality on the grounds that those terms, or their application, created standards or imposed technical specifications or requirements that had not been notified to the EU Commission under the Technical Standards Directive 98/34?

3. Is the Irish Supreme Court obliged to presume that a product produced in accordance with the relevant standard is of merchantable quality and fit for its purpose, and if so, may such a presumption be rebutted only by tests carried out in accordance with the standard at the time of supply of the product?

These are crucial points for Irish Asphalt: the aggregates supplied to JEC were tested for pyrite after they had been used in the construction of the building. If IA could demonstrate that the aggregates should have been presumed to comply with Standard IS 13242:2002, and that a product is only in breach of the standard if it is tested at the time of production or supply, then this would dislodge the judgment against IA by the High and Supreme Courts.   The principle of supremacy of European law requires a national court to apply European law in preference to national law where there is a conflict.

The opinion was delivered by Advocate General Campos Sanchez – Bordona 28 January 2016.

The Advocate General recited the key provisions of the Construction Products Directive 89/106, the Technical Standards Directives 83/189 as amended by Directive 98/34, and the Irish Sale of Goods Act 1893 as amended by the Sale of Goods and Supply of Services Act 1980.

On the first question relating to the jurisdiction of the ECJ to interpret the harmonised standard, the Advocate General considered that, as the ECJ clearly has jurisdiction to interpret the Construction Products Directive, it must then have jurisdiction to interpret a harmonised standard adopted pursuant to that Directive.

On the second question, the Advocate General accepted the view of the Irish Supreme Court, to the effect that a product could be tested “during the products economically reasonable working life”, and that the directive did not require that proof of conformity with the technical standard could only be established by a test carried out at the time of the products manufacture. This is an important point for JEC; if compliance with the standard could only be established by tests carried out at the time of manufacture, then all of the testing of the aggregates for the purposes of the litigation would be ruled out of consideration.

On the third question, the Advocate General was of the opinion that a presumption of fitness for use of construction products was of no effect when the merchantable quality of construction products is assessed, for the purposes of application of a national law governing the sale of goods.

Another important point for JEC is that if Irish Asphalt could demonstrate that s. 14 ( 2) of the 1893 Act should not be applied, then it would only have to comply with the technical standard, and not with the requirement of merchantable quality under the Act.

Arguably the most important aspect of the opinion relates to the question of whether the provisions of Irish law implying terms of merchantable quality of fitness for purpose must be disapplied, as they have not been notified to the Commission in accordance with Directive 98/34. The Advocate General was quite clear that a provision of national law such as s. 14(2), which can be excluded by agreement between the parties, could not constitute a technical regulation within the meaning of the definition of Directive 98/34.

If the ECJ follows the Advocate General’s opinion, then the Supreme Court will be in a position to confirm its judgement on liability expressed in its decision of December 2014. In it, the Supreme Court upheld the finding of Charlton J in the High Court decision of May 2011, and award damages for IA’s breach of contract.

It will be the end of an exceptionally long and costly road for both parties.  I will post an update when the ECJ issues its ruling.

A building contract is a contract for services for the purposes of the Sale of Goods and Supply of Services Act 1980, of which section 39 (3) provides as follows:

‘Subject to section 40, in every contract for the supply of a service where the supplier is acting in the course of a business, the following terms are implied –

• that the supplier has the necessary skill to render the service,
• that he will supply the service will due skill, care and diligence,
• that, where materials are used, they will be sound and reasonably fit for the purpose for which they are required, and
• that, where goods are supplied under the contract, they will be of merchantable quality within the meaning of section 14 (3) of the Act of 1893 (inserted by section 10 of this Act).

Noreside Construction v. Irish Asphalt^[1] concerned a contract for the sale of aggregates for use in the building of houses and apartments in Finglas, Dublin, that was entered into in 2003. Some five years after the sale of the aggregates, the defendant Irish Asphalt notified Noreside that aggregates from its Bay Lane quarry contained pyrite, and should not be used in building.

By 2008, a number of residential and commercial developments in Dublin and in surrounding counties had suffered significant damage due to excessive pyrite content in the aggregate used in their construction.   The effect of reactive pyrite in hardcore used as infill is that floor slabs and walls of the building can heave upwards, leading to cracking and extensive remedial works.

Noreside sought an indemnity from Irish Asphalt in respect of damage to the development in Finglas where aggregate from the Bay Lane quarry had been used, and where significant damage had occurred to the houses due to pyrite heave.   Irish Asphalt sought to rely on a limitation on liability in its standard terms and conditions; Noreside, however, claimed that it had purchased the aggregate on its own standard terms.   Considerable evidence was put before the court as to the exchange of correspondence between the parties, in order to establish what terms had been incorporated into their contract.

The court ultimately concluded that neither party’s standard terms and conditions of supply had been incorporated, and that the contract had in fact been formed when two senior employees of Noreside and Irish Asphalt had agreed, orally, for the supply of aggregate, and when a purchase order was sent by the plaintiff to the defendant. There were limited express terms in the order, no warranties and no limitation on liability.

The court held that the delivery dockets accompanying the aggregates did not create new contracts on each delivery, and were intended to record the volume delivered, and that the operatives in charge of those deliveries had no authority to vary the original contract.

The effect of the finding was that the defendant’s limitation on liability was not part of the contract; the Court accepted the plaintiff’s contention that the implied term of merchantable quality from s. 14 (2) of the Sale of Goods Act 1893 did apply, on the basis that there was no evidence to support the exclusion of that term.

Irish Asphalt appealed to the Supreme Court; the Court dismissed the appeal in late 2014. The appeal turned on Irish Asphalt’s claim that the trial judge had been wrong in finding that there was only one contract formed between the parties, and that the delivery dockets did not have the effect of varying the terms of the contract.

Instead, Irish Asphalt claimed that the contract entered into was a ‘master’ contract, but that separate contracts were entered into with each delivery of aggregates, which themselves were subject to terms and conditions referred to (but not included in) the delivery dockets accompanying each delivery of aggregates.  It then claimed that its terms and conditions, although not specified in the delivery dockets, were incorporated by reasonable notice, or a course of dealing between the parties.

The Supreme Court was prepared to accept that a separate contract was entered into with each delivery of aggregates; however, the court did not accept that the defendant’s terms and conditions were incorporated into each of those contracts.

One of the crucial points in the court’s analysis is that the inclusion of a reference to terms and conditions being ‘available on request’ was not sufficient to incorporate those terms and conditions into the contract between the parties.  This was the case notwithstanding the fact that the plaintiff’s site foreman or other representative would have signed the docket upon each delivery of aggregates.

This was a fundamental issue for the defendants; their terms and conditions contained a limitation on their liability, while the original contract agreed with the plaintiff for the supply of aggregates did not.

Noreside Construction v Irish Asphalt, [2011] IEHC 364 (High Court)

Noreside Construction v Irish Asphalt [2014] IESC 68 (Supreme Court)

Irish Asphalt (IA) provided aggregates to James Elliott Construction (JEC) for use in construction of a youth centre in Ballymun in Dublin.   Aggregates are small stones, quarried and used as infill under poured concrete floors in buildings.     The aggregates supplied to JEC contained reactive pyrite; this mineral expands upon contact with air and water, cracking floor slabs and forcing walls built upon floor slabs to ‘heave’ upwards.

The building in this case began to show signs of pyrite damage within a short period following completion.

Remedial works were carried out by JEC, which then sued IA as supplier of the aggregates. Section 14 of the Sale of Goods and Supply of Services Act 1893 implies a term of merchantable quality into contracts for supply of goods, where the supplier is acting in the course of a business.   Damages were awarded to JEC in the Irish High Court in May 2011, on the basis that IA had breached the implied contractual term of merchantable quality.

So far, so good for JEC. IA, however, appealed to the Supreme Court. In December 2014, the Supreme Court referred the defence raised by IA by way of a request to the European Court of Justice (ECJ) for a preliminary ruling.     The court made clear, however, that as a matter of national law, it would uphold the High Court decision and find Irish Asphalt liable for breach of the implied term of merchantable quality:

‘..as a matter of national law, Elliott Construction would be entitled to succeed on the grounds that there was breach of both the express term as to the supply of aggregate described as Clause 804 and the implied term as to merchantability, and Irish Asphalt’s against the outcome of the High Court decision would fail.’

The judgment, however, could not be finalised until the outcome of the reference to the ECJ for a ruling on the questions that raised an issue of European law.  Amongst the questions referred was whether the implied term of ‘merchantable quality’ was incompatible with a harmonised standard applicable to aggregates.

IA argued before the Supreme Court that the evidence presented to the High Court had not established breach of the relevant standard, and that in finding a breach of the 1980 Act, that the High Court had effectively imposed a new standard, incompatible with the existing European and national standard and thus contrary to European law.   (There is a requirement under the Technical Standards Directive, Directive 98/34, for Member States to notify the Commission of draft technical standards, and Member States must not recognise, approve or use any national standards that have not been through the notification procedure.)

Before the ECJ issues a ruling, an ‘Advocate General’ issues an opinion.  The opinion is not binding on the ECJ, but the Court often follows the opinion, and indeed there are a number of examples of Advocate General opinions that were not followed by the ECJ but were nonetheless referred to in subsequent cases in support of particular arguments.  Therefore, the Advocate General’s opinion is reviewed closely by the parties and observers, as a steer on how the Court may answer the question put to it by the national court.   In Part 2 of this post, I examine the Advocate General’s opinion in the case, issued in February 2016.