Armstrong v Glenwood Homes

[2001] QSC 256

SUPREME COURT OF QUEENSLAND

CITATION:	Armstrong & Anor v. Glenwood Homes & Ors [2001] QSC 256
PARTIES:	VICKI ARMSTRONG and RICHARD ARMSTRONG (Plaintiffs) AND GLENWOOD HOMES PTY. LTD. (ACN 010 930 284) (First Defendant) AND IMPACT CONSULTANTS PTY. LTD. (ACN 054 976 233) (Second Defendant) AND THURINGOWA CITY COUNCIL (Third Defendant)
FILE NO/S:	S434 OF 1999
DIVISION:	Supreme Court
PROCEEDING:	Application
ORIGINATING COURT:	Supreme Court
DELIVERED ON:	27th June 2001
DELIVERED AT:	Townsville
HEARING DATE:	25th June 2001
JUDGES:	Cullinane J
ORDER:	Application is dismissed with costs
CATCHWORDS:
COUNSEL:	T. Bradley for the Applicant W. Elliott for the Respondent
SOLICITORS:	Wilson Ryan & Grose for the Applicant Minter Ellison for the Respondent

1. The second defendant seeks an order under Rule 293 of the Uniform Civil Procedures Rules for summary judgment.  Rule 293 provides as follows:-

Summary judgment for defendant

293   (1) The defendant may at any time apply to the court under this part for judgment.

(2) Also, the court may give any judgment or make any other order the court considers appropriate if satisfied –

(a)        no reasonable cause of action is disclosed; or

(b)        the proceeding is frivolous, vexatious or an abuse of the process of the court; or

(c)        the defendant has a defence to the proceeding.

1. I take the principles applicable on such an application to be those found in General Steel Industries Inc. v Commissioner for Railways (NSW) and Ors. (1964-5) 112 CLR 125 and the cases which have followed it.

1. For such an order to be made the applicant must clearly demonstrate that the action must fail.  The test has been stated variously (see Barwick CJ in General Steel Industries (supra) at p. 129) but for present purposes I will take the test to be that the action is so obviously untenable that it cannot possibly succeed.

1. The plaintiffs have instituted proceedings against three defendants.  The statement of claim alleges that the plaintiffs purchased a house by contract dated the 15^th January 1994 and entered into possession on or about the 17^th February 1994.  The first defendant built the dwelling and the second defendant designed the footings and slab for the dwelling. 

1. It is alleged that in about March 1995 (that is a little over a year after entering into possession) the plaintiffs noticed cracks in the internal walls of the house.

1. Paragraph 8 of the amended statement of claim makes the following allegation.

“8.        Impact:

(a)        Impact designed the footings and slab for the house and issued a structural design certificate on 24 July 1992 certifying that the work was designed in accordance with the relevant provisions of the Standard Building Codes and in accordance with sound widely accepted engineering principles and had been checked internally; and

(b)        Owed a duty to the then owners and their successors in title to exercise reasonable care and competence as structural engineers in designing the footings and slab for the house.”

1. The claim is particularised in paragraph 23 of the amended statement of claim.

1. The claim is one for both costs of rectification and loss of value.  The claim therefore is plainly one for economic loss.

1. The applicant brings this application on two grounds.  Firstly it is contended that an engineer who designs a dwelling is not subject to a duty of care to a subsequent owner of those premises to design them in a way as to avoid defects or potential defects.

1. The second ground is based upon a factual assertion namely that the builder in fact used the design prepared by the second defendant in the construction of a building with internal walls different in nature to those which the second defendant was asked to design for.  This is a factual matter and I do not think that the application should succeed on this basis.  There is nothing in the amended statement of claim which reflects such a factual position except for the date of the structural design certificate. If, now that these issues have been exposed, any amendments to the statement of claim are necessary, I assume that the necessary steps will be taken.  I am not prepared to make the order upon the basis that the applicant will succeed upon the factual issue raised.  Nor does it seem to me that the absence of any direct evidence from the plaintiffs on this issue should determine the outcome of this application.  See Ambrose J in Morton v Brown (SC Brisbane No. 7587 of 1998 10.11.2000 unreported) at pp. 2 and 3.

1. The application to strike out was based to a substantial degree on the judgment of the Court of Appeal in Fangrove Pty. Ltd. v Tod Group Holdings Pty. Ltd. (1999) 2 Qd. R. 236.

1. In that case the building concerned was a commercial building.  The engineers had designed a parapet for it in 1985.  It was subsequently purchased by the plaintiff in 1989 and collapsed in 1995 damaging the building.

1. The claim was one of economic loss.  The Court held that a designer of a commercial building was not subject to a duty of care to a subsequent owner of the premises to design them so as to avoid potentially dangerous defects so that upon breach the owner could recover its loss.

1. It was held that the requisite proximity to enable recovery of economic loss in such a case did not exist.

1. A good deal of the judgment turned upon a consideration of the judgment of the High Court in Bryan v Maloney (1995) 182 CLR 609.

1. It was held by the Court of Appeal that there should not be permitted at least at the level of the Court of Appeal any further extension of the circumstances in which in accordance with the principles in Bryan v Maloney (supra) pure economic loss might be recovered by a subsequent owner of a building.

1. In Bryan v Maloney the plaintiff was a subsequent purchaser of a dwelling which had been erected by the defendant.  After the plaintiff purchased the dwelling and took possession, cracks began to appear in the walls of the house caused by the fact that it had been built with inadequate footings.

1. The case turned upon whether the builder had a duty of care to the plaintiff.  In the judgment of Mason CJ, Dean J and Gaudron J at p. 625, the considerations which were pivotal to the judgment were canvassed:

“It is in the context of the above-mentioned relationships of proximity that one must determine whether the relationship which exists between a professional builder of a house, such as Mr. Bryan, and a subsequent owner, such as Mrs. Maloney, possesses the requisite degree of proximity to give rise to a duty to take reasonable care on the part of the builder to avoid the kind of economic loss sustained by Mrs. Maloney in the present case.  It is likely that the only connexion between such a builder and such a subsequent owner will be the house itself.  Nonetheless, the relationship between them is marked by proximity in a number of important respects.  The connecting link of the house is itself a substantial one.  It is a permanent structure to be used indefinitely and, in this country, is likely to represent one of the most significant, and possibly the most significant, investment which the subsequent owner will make during his or her lifetime.  It is obviously foreseeable by such a builder that the negligent construction of the house with inadequate footings is likely to cause economic loss, of the kind sustained by Mrs. Maloney, to the owner of the house at the time when the inadequacy of the footings first becomes manifest.  When such economic loss is eventually sustained and there is no intervening negligence or other causative event, the causal proximity between the loss and the builder’s lack of reasonable care is unextinguished by either lapse of time or change of ownership.

The only factor which arguably precludes the recognition of a relevant relationship of proximity between builder and subsequent owner for the purposes of the present case is the kind of damage involved, namely, mere economic loss.”

And at pp. 626 and 627:

“In circumstances where the particular kind of economic loss is that sustained by an owner of the house on the occasion when the inadequacy of the footings first becomes manifest, there is no basis for thinking that recognition of a relevant relationship of proximity between builder and that owner would be more likely to give rise to liability ‘in an indeterminate amount … to an indeterminate class’ than does recognition of such an element of proximity in the relationship between builder and first owner.  It is true that, in so far as ‘an indeterminate time’ is concerned, the time span in which liability to a subsequent owner might arise could be greater than if liability were restricted to the first owner.  Nonetheless, the extent of that time span would be limited by the element of reasonableness both in the requirement that damage be foreseeable and in the content of the duty of care (75).  In any event, it would prima facie correspond with that applicable to the relationship of proximity which clearly exists as regards physical injury to person or other property.  Moreover, any difference in duration between liability to the first owner and liability to a subsequent owner is likely to do no more than reflect the chance element of whether and when the first owner disposes of the house.

Upon analysis, the relationship between builder and subsequent owner with respect to the particular kind of economic loss is, like that between the builder and first owner, marked by the kind of assumption of responsibility and known reliance which is commonly present in the categories of case in which a relationship of proximity exists with respect to pure economic loss.  In ordinary circumstances, the builder of a house undertakes the responsibility of erecting a structure on the basis that its footings are adequate to support it for a period during which it is likely that there will be one or more subsequent owners.  Such a subsequent owner will ordinarily have no greater, and will often have less, opportunity to inspect and test the footings of the house than the first owner.  Such a subsequent owner is likely to be unskilled in building matters and inexperienced in the niceties of real property investment.  Any builder should be aware that such a subsequent owner will be likely, if inadequacy of the footings has not become manifest, to assume that the house has been competently built and that the footings are in fact adequate.

Ultimately, it seems to us that, from the point of view of proximity, the similarities between the relationship between builder and first owner and the relationship between builder and subsequent owner as regards the particular kind of economic loss are of much greater significance than the differences to which attention has been drawn, namely, the absence of direct contact or dealing and the possibly extended time in which liability might arise.”

1. As McPherson JA put it in Fangrove Pty. Ltd. (supra) at p. 242:

“The decision in Bryan v Maloney (1995) 182 CLR 609 suggests that residential buildings may occupy a specially favoured place in Australian jurisprudence; but, as the Chief Justice observes in his reasons in the present appeal, any extension of the present boundaries of the liability marked out by that decision is a matter which is for the High Court rather than this Court to determine.”

1. There is undoubtedly a significant distinction between the circumstances of Bryan v Maloney and the present case in that the applicant here was an engineer who it would seem was engaged by the builder.

1. On the other hand there is a significant distinction between this case and Fangrove’s case in that this case concerns a dwelling rather than a commercial building.

1. A number of the considerations relied upon in the joint judgment referred to above in Bryan v Maloney are arguably relevant to the present case whilst a number arguably are not relevant.  It may be that ultimately the plaintiffs will fail in the action because they will not be able to point to the same elements of reliance and assumption of responsibility that existed in Bryan v Maloney or perhaps the same degree of such reliance or assumption of responsibility.  On the other hand the distinction between this case and Fangold Pty. Ltd. may justify a different conclusion.

1. I am not persuaded that the matter can be regarded as so clearly settled by the authorities that bind me that the plaintiffs should be denied the opportunity to pursue their claim against the applicant.

1. The right to recover damages for pure economic loss is a comparatively new and developing area of the law of negligence.  In a number of cases, including Bryan v Maloney itself and more recently Perre v Apand Pty. Ltd. (1999) 198 CLR 180 the High Court recognised the difficulty which was being encountered in attempting to articulate a governing principle applicable to tortious liability in respect of purely economic loss. As Gaudron J said in Perre v Apand Pty. Ltd. (supra) at p. 197:

“It is not yet developed to a stage where there has been annunciated a governing principle applicable in all cases.  Perhaps it never will.  Not surprisingly, given the present stage of development, different approaches have been advanced as to the way in which claims for which there is no legal precedent should be dealt with.”

1. This area of law is plainly one in which development is occurring and in which authoritative determination of the general principle governing liability is still awaited.

1. Whilst the applicant might be justified in its confidence that the plaintiff will not succeed, I am not prepared to conclude that the cause of action is so obviously untenable that it cannot possibly succeed to make the order sought.

1. I should add that it was contended that a relevant factor in the case was that the defect had manifested itself prior to the plaintiffs purchasing the dwelling.  This is based upon a statement made by a previous owner to Mr. Lennox.

1. On the other hand the plaintiffs plead that it was some year after they first took possession of the house that they noticed cracks in its internal walls.  I do not think it would be appropriate in the circumstances of this case to proceed upon the basis that the hearsay evidence contained in Mr. Lennox’s affidavit is correct.

1. The result will be that the application is dismissed with costs.