Architects owe a duty of care in negligence only to parties with whom they have a contractual relationship, limiting claims for pure economic loss.

[1] This is a unanimous decision.

The Issues

[2] The appeal before us stemmed from a dispute relating to an industrial building project known as "Projek Skim Bangunan Industri Ringan Bersepadu Pencemaran Bebas" in Seberang Perai Tengah, Pulau Pinang. As its name suggests the project was a special industrial project intended to cater for industries that were likely to produce and discharge environmentally hazardous substances and which may pose environmental risks to living organisms as defined in the Environmental Quality Act 1974 ( EQA ).

[3] This appeal focuses on the practical problems in the law of negligence with regard to the general and consequential issues relating to the duty of care owed by the respondents to the appellants against damages being pure economic loss, not linked to any personal injury or structural defects or damage to the property.

Background Facts

[4] There were 50 appellants in this appeal. They were the purchasers of units of industrial building in the above named project. The developer of the project was Merger Acceptance Sdn Bhd. In 1995, the appellants signed their respective sale and purchase agreements (the SPAs) with the developer. The respondents were the Project Architects appointed by the developer. Rakyat Corporation Sdn Bhd (the 1st defendant at the High Court) was the Project Manager.

[5] Since the project was a special industrial project as stated above compliance with the mandatory requirements of the relevant statutory provisions was crucial.

[6] The salient terms of the SPAs are as follows:

i. Clause 7.01 prescribes that the industrial building was to be completed by the developer and vacant possession be delivered to the appellants within 24 months from the date of the approval of the building plan. Failing which, the appellants were entitled for payment of liquidated damages at the rate of ten per centum (10%) per annum of the purchase price.

ii. By s 2.01, "Building Plan" refers to the plan submitted by the developer to the appropriate authorities for the construction of the industrial building and includes such reasonable amendments to the building plan as may from time to time be made by the developer or the respondents architects and approved by the appropriate authorities or such amendments as may be required by the appropriate authorities.

iii. Clause 7.03 imposes on the developer a duty to procure the issuance of certificate of fitness for occupation (CFO) and to comply with all the requirements of the appropriate authorities in respect of the construction of the industrial building.

iv. Clause 14.02 and the Sixth Schedule of the SPAs specifically imposed on the developer a duty to comply with the mandatory requirements of the relevant statutory laws. Amongst others, the developer was required to build a toxic waste water treatment plant known as Central Effluent Industrial Treatment System (CEITS) for treatment of hazardous and toxic waste according to specifications required by the Department of Environment (DOE) and the statutory provisions of the Environmental Quality (Industrial Effluent and Discharge) Regulations 1979.

[7] On 20 December 1994, the original layout plan was approved by the Local Authority, Majlis Perbandaran Seberang Prai (MPSP). In granting approval for the project, MPSP imposed a condition that the requirements of the DOE in particular the provisions of the Environmental Quality (Industrial Effluent and Discharge) Regulations 1979 must be complied with.

[8] Following an application by the developer, the DOE