It appears that climate change, and in particular prolonged dry and/or hot weather, has resulted in a considerable increase in such claims, since drought results in a decrease in soil volume, making clay soil particularly vulnerable.
Subsidence claims appear likely to increase in the future.
The Brandley case
Considerable uncertainty still surrounds the question of when claims for subsidence accrue, and when they become statute-barred.
In the Supreme Court case of Brandley v Deane, McKechnie J dealt with the situation where a claim for subsidence was already statute-barred in contract, but the question remained whether it was also statute-barred as a tort.
Dealing with when the cause of action accrued, he stated (at paragraph 2 of his judgment): “This area of the law has been bedevilled with misdescription, lack of clarity, and confusion between terms which are quite different, and with their interchangeable use when it is ill-judged and inappropriate to do so.”
He was of the view that there were five distinct possible starting points from which the clock might run for limitation purposes, namely:
- The date of the wrongful act,
- The date that the damage occurs,
- The date that the damage is manifest,
- The date of discoverability, and
- The date on which the damage is actually discovered.
In the case in question, the foundations of the two houses involved were completed in March 2004, when the first-named defendant (Mr Deane, the consulting engineer) issued his certificate of compliance with planning permission and building regulations.
The second defendant was the contractor who laid the foundations. The houses were completed between September 2004 and January/February 2005. In December 2005, the plaintiffs observed that cracks had appeared in each of the houses, but the plaintiffs did not issue their proceedings until 30 November 2010.
The High Court judgment in the Brandley case dismissed the plaintiffs’ claim, since it was held that discoverability could not be the relevant starting date. But in the Court of Appeal, Ryan P, giving the judgment of the court, took the view that the High Court judgment was in error, in that negligence without the accompaniment of damage or loss was not actionable.
He stated: “The plaintiffs did not suffer damage at the time when the defective foundations were installed. When the defective foundation was put in, the only complaint that the plaintiffs could have had was that the foundation was defective.”
Ryan P found that the damage resulting from the defective foundations happened in December 2005.
Supreme Court appeal
The defendants/appellants obtained leave to appeal to the Supreme Court on three points, which could be summarised as the question of when time runs for the purpose of the Statute of Limitations in property damage claims.
The appellants relied, among other things, on the Supreme Court decision in Gallagher v ACC Bank in support of the contention that it was not necessary for a plaintiff to await the full quantification of losses before commencing an action for damages.
McKechnie J pointed out that, in negligence, some actual damage beyond what can be regarded as negligible must occur before the tort can be said to be complete. Accordingly, the occurrence of a wrongful act resulting from an established breach of duty will not itself constitute a cause of action.
The parties agreed that the discoverability test was irrelevant. McKechnie J regretted the irrelevance of the test in cases such as Brandley:
“As a result, as matters presently stand, this court cannot provide for any manner of discoverability test in cases of this nature, even though the introduction of such a test would greatly enhance the clarity of the law and also defeat the harshness and injustice which persists under the current scheme. That, as above stated, is a most regrettable state of affairs.”
Accordingly, it was held that the time limit on negligence actions begins to accrue on the date on which damage manifests itself, and not the date on which the damage is discovered.
The cause of action will not accrue until actionable damage has been caused. It is not the defect that needs to be capable of discovery: it is the subsequent physical damage caused by that defect.
McKechnie J continued: “In my view, time begins to run from the date of manifestation of damage, which means it runs from the time that the damage was capable of being discovered and capable of being proved by the plaintiff.”
Implied in that conclusion is the further finding in Brandley that a cause of action in negligence is not complete until actionable damage has occurred.
A useful summary of the views in McKechnie J’s judgment are contained in his approval of the judgment in the 1996 New Zealand case of Invercargill City Council v Hamlin:
“The plaintiff’s loss occurs when the market value of the house is depreciated by reason of the defective foundations, and not before. If he resells the house at full value before the defect is discovered, he has suffered no loss.
“Thus, in the common case, the occurrence of the loss and the discovery of the loss will coincide … In other words, the cause of action accrues when the cracks become so bad, or the defects so obvious, that any reasonable homeowner would call in an expert. Since the defects would then be obvious to a potential buyer, or his expert, that marks the moment when the market value of the building is depreciated, and therefore the moment when the economic loss occurs …
“The measure of the loss will then be the cost of repairs, if it is reasonable to repair, or the depreciation in the market value if it is not.”
In Brandley, the parties had agreed that the discoverability test was not applicable. But, to many, it may appear that, between damage being discoverable and being manifest, there is a distinction without an obvious difference. Understandably, McKechnie J expressed the view that the introduction of a statutory discoverability test in such cases would be desirable.
From the point of view of a litigant, there may be some difficulty in understanding why different periods of limitation should apply, firstly, in the case of breach of contract and, secondly, in the case of a tort (other than one that is actionable, per se).
In the case of a breach of contract, the limitation period accrues on the date of the breach.
In the case of a tort, the cause of action is not complete until the plaintiff has suffered consequent loss.
In the Gallagher case referred to above, O’Donnell J dealt with the illogicality of different limitation periods applying in contract as distinct from tort:
“Where appropriate, the policy of the law should be to minimise rather than expand the disparity between the running of time in contract and tort cases, at least when the wrongdoing alleged is identical … The suggestion that contract and tort should, where possible, offer the same answers to the same question is not simply a case of seeking an unobtainable elegance of pattern: rather it is a question of seeking to achieve a fair and predictable result.”
The Gallagher case concerned a failed investment, and O’Donnell J pointed to the further illogicality of different limitation periods for contract and tort:
“In theory, a wronged plaintiff should be able to maintain all claims arising out of the same transaction, but that would only be possible on this hypothesis by initiating the contractual claim, then delaying it, and then seeking to amend it to include the tort action alleged to have accrued.
“Even more oddly, if, as was suggested in argument in this case, the cause of action in tort might accrue at a point during the investment period when, to use a phrase fraught with its own difficulties, it was clear that the investment was doomed to fail, then it would follow that that point could only be determined with certainty after the case had been heard and decided.”
There should not be a distinction in accrual of a cause of action in tort as between a doomed-to-fail investment (as in Gallagher) and a doomed-to-fail foundation of a house, though that distinction favours a plaintiff in the latter.
In many subsidence claims, the dispute (unlike in Brandley) will be between the householder and the insurer.
In those cases where the insured failed to notify a claim for subsidence to the insurer within the time specified by the policy, the insurer may seek to avoid liability on the basis of that delay. There is no point in having subsidence insurance, if it is not availed of where necessary. Accordingly, the insured should ensure that a claim for subsidence is made at the earliest relevant time.
But in the event of a dispute between the insured and the insurer in relation to whether the claim was made in time, and where the insured is a ‘consumer’ for the purpose of the Consumer Protection Code 2012, as amended, the insured should rely on his or her relevant rights under that code and/or under the Consumer Protection Act 2007, as amended.
Furthermore, depending on the terms of the relevant insurance contract – and, again, where the insured is a ‘consumer’ – the insured may have relevant rights where the term or terms invoked by the insurer to avoid payment under the policy are ‘unfair terms’ within the meaning of the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995.
Paragraph 3.2 of the regulations provides: “For the purpose of these regulations, a contractual term shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.”
An unfair term in a contract concluded with a consumer by a seller or supplier is not binding on the consumer (paragraph 6.1). Among the grounds on which relevant terms may be deemed unfair is where the insured was purportedly irrevocably bound by the said unfair terms, without having had any real opportunity of becoming acquainted with same before the conclusion of the contract (schedule III, paragraph 1).
It is important to note that, where an insured alleges its entitlement to avoid payment under a policy on the basis of an exclusion or exemption from liability under the policy, the onus of proof in that regard is on the insurer. (See the 2005 judgment of Geoghegan J in Analog Devices BV and Others v Zurich Insurance Co and Another.)
Where potential signs of subsidence in a building (for example, cracks appearing in walls) occur, the owner should immediately have the matter professionally investigated and, if warranted, make a claim without undue delay.
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