Bryan v Moloney

[1994] HCATrans 262

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Hobart No Hl0 of 1993

B e t w e e n -

ALLAN BRYAN

Appellant

and

JUDITH ANNE MOLONEY

Respondent

MASON CJ
BRENNAN J
DEANE J
TOOHEY J

GAUDRON J

Bryan(2) 28 24/3/94

TRANSCRIPT OF PROCEEDINGS

AT HOBART ON THURSDAY, 24 MARCH 1994, AT 10.19 AM

(Continued from 23 March 1994)

Copyright in· the High Court of Australia

MASON CJ: Yes, Mr Tree.

MR TREE:  Your Honour, yesterday I had proceeded to point

No 2 in my outline of submissions and I was dealing

with Your Honour the Chief Justice's comments in

Sutherland v Heyman. Before I proceed to discuss

Your Honour Justice Brennan's and Your Honour

Justice Deane's comments in that same case, can I

revert to point 1 and make two brief points in

relation to that and the proposition that proximity

is a necessary requirement.

Your Honours will recall that in the decision

in the Queensland Court of Appeal in Christopher,

there Their Honours found some support for the view

which they took in the article by His Honour

Justice McHugh. It is perhaps unnecessary to say

that His Honour does not seem to have followed the

view enunciated in that article by concurring with

the majority as he did in the joint judgment in

Gala v Preston. There he positively espoused the

notion of proximity. The other point which I make

in relation to proximity is that from my friend's

submissions, I do not understand him to be

proposing that this Court ought depart·from·the

proximity test.

Your Honours, can I return to Sutherland v Heyman, 157 CLR 424. Can I turn to page 493 of

that decision. There Your Honour Justice Brennan,
approximately half-way down the page, says this in

the paragraph commencing, "I do not wish":

I do not wish to found my opinion on a

rejection of the classification of the damage

adopted in Anns. The question is, as I have said, whether the appellant was under a duty

to avoid the damage actually suffered and the

answer to that question does not depend upon

correct or incorrect classification in

pleading or in argument. It is necessary to

identify what is the event, circumstance or
liability that is said to constitute the

plaintiff's damage and, having regard to its

nature and the circumstances of the case, to

determine whether the defendant was under a duty to avoid or prevent it. The nature of

the damage is relevant to the existence and

scope of the duty when a special element

restricts the cause of action to damage of

that kind: see Jaensch v Coffey.

Similar comments can be found at page 502 by

Your Honour Justice Deane. There, approximately

two-thirds of the way down the page, Your Honour

commences:

Bryan(2) 29 24/3/94

In accordance with the clear trend of

recent authority, the general principles of the common law of negligence should also be

recognized as extending to cases involving

mere economic loss, that is to say, economic

loss which is not consequential upon ordinary

physical injury to one's person or property.

Again, however, the distinction between mere economic loss and ordinary physical loss or

injury remains important in determining

whether the requisite proximity of

relationship exists in a particular case or

category of case. The field of liability for

pure economic loss is a comparatively new and

developing area of the law of negligence. risk of such loss does not of itself suffice

to give rise to a prima facie duty to take

reasonable care to avoid it. That being so,

the circumstances in which the relationship

between the parties will be such as to impose

a duty to take care to avoid pure economic

loss are also properly to be seen as special.

There, whilst Your Honour focuses upon the

categorization· of the ·damage,, Your· Honour is·,not,

in our submission, suggesting that that is some

critical factor to be taken into account; rather,

it is one of the factors to be taken into account.

BRENNAN J: What is the damage in this case? It was

calculated by reference to the cost	of making good
some defects in construction of the	building, was
it not?

MR TREE:  There were two aspects, Your Honour. The first

was the underpinning of the foundations which can

be seen, in our submission, as being the remedying

of the primary defect, namely the failure to take

the footings down to an adequate depth. The second

aspect of compensation was for repairing damage

which had manifested itself by reason of the rise

and fall of the house; cracks in the brickwork and

plasterwork and so forth.

BRENNAN J: That economic loss, was that a loss at least in

respect of the foundations for which the original

owner could recover?

MR TREE:  The answer to Your Honour's question is probably

dependent upon whether or not that was a manifest

defect at the time that it was owned by the person

for whom the structure was built. The decision

seemed to suggest that the cause of action arises

upon the damage becoming manifest, although I

understand that Your Honour is suggesting, if it

Bryan(2) 30 24/3/94

was not manifest, could the first purchaser

recover.

BRENNAN J:  I am not suggesting anything. What I am

endeavouring to understand is what is the nature of

the claim for economic loss which has been made.

It is the cost of making good some defects in the building; it is not, for example, buying a building for less than it was worth or more than it is

worth?

MR TREE:  No, Your Honour, that was not the basis of

the -

BRENNAN J:  We have not got any information, have we, as to

the contract price between Mr Bryan and Mrs Manion?

MR TREE:  I do not believe so, Your Honour.

BRENNAN J: Nor the price at which Mrs Manion sold?

MR TREE:  No, Your Honour.

BRENNAN J: Or the price at which the purchaser for

Mrs Manion sold to the plaintiff?

MR.TREE: That is so, Your Honour.

BRENNAN J: All we know is that an engineer has estimated

the amount that was awarded as the cost of making

good some defects.

MR TREE: That is so, Your Honour; it was in fact an

architect.

BRENNAN J:  Do we have any information as to when the

defects in respect of which the assessment was made

became manifest?

MR TREE: Yes, we do, Your Honour. That is in volume I of

the appeal book at page 13. It is during my

examination of Mrs Moloney and the question is

asked:

Well did you have any state of mind as regards

to the construction of it, the building of

it?---Just that it was properly built.

Now can you recall where you first noticed or

sorry, did you start to notice some

cracks?---Yes I did.

Can you recall when you first noticed a

crack?---In the carport.

And when do you think that was, how long after

you purchased the house?---About 6 months.

Bryan(2) 31 24/3/94

BRENNAN J: That is when she first noticed it?

MR TREE: That is so, Your Honour.

BRENNAN J:  Do we have any other information as to whether

cracks appeared at any other time, if that is what

the manifestation of it is to be?

MR TREE:  The balance of her evidence goes on to narrate the

subsequent history of her discovering further

cracks and the development of those cracks.

BRENNAN J: Would your action fail if the cracks were

apparent before she bought it?

MR TREE:  I think it would, Your Honour, if, upon a

reasonable inspection by a purchaser, they would

have been observed.

BRENNAN J:  So the cause of action for which you contend is

a cause of action in negligence against the

original builder, being the cost of making good

defects at the moment when they become visible. I take it that that cause of action is vested in the then owner of the premises.

· MR TREE: · That wou·ld be our submission, Your Honour, yes.

BRENNAN J:	So that the next purchaser if, for example, the cracks were papered over only, would not have any
cause of action?
MR TREE:	That would be our submission, Your Honour, yes.

BRENNAN J: Yes, I see.

MR TREE:  I am conscious of one matter which Your Honour has

adverted to if the cracks were papered over. My

answer would be more affirmative if the cracks had

not been papered over. If on the other hand there

has been some deliberate attempt to conceal, my

answer may not be changed apart from the fact that

it would bring into consideration prospects of

actions against the vendor for fraud.

BRENNAN J:  If you have got a crack in your wall, you might

put a bit of spackling in there. It is the most

natural thing in the world to do without any

concept of fraud.

MR TREE:  I accept that, Your Honour. It would depend upon

the circumstances of the concealment but, as I say,
my answer would be stronger in the event that the
cracks were observable than in the case of the

cracks being concealed.

Bryan(2) 32 24/3/94

BRENNAN J:  Can I just press you with one other question.

Cracks come and cracks increase. What happens if

owner A is the owner at the time the first cracks

come and owner Bat the time when the big crack

comes, and both of them are traceable to faulty

foundations?

MR TREE:  I think the answer to Your Honour's question would

be that the cause of action rests with the person
who was the owner at the time that the defect
manifested itself and if the manifestation or the

reasonable manifestation is the small crack, then

that is the party who has the action. I am

reflecting upon there perhaps being a question of

fact necessary for determination in answering

Your Honour's question, namely whether that

manifestation was capable of being reasonably

understood as a manifestation of the defect. My

answer may be different if it was not and it was

only the large crack which was the reasonable

manifestation or could reasonably be understood as

a manifestation of the defect.

BRENNAN J:	By an engineer or by a layman?
MR TREE:	I think the answer .would have to be by a layman,

because that is the purchaser, rather than some

skilled person.

BRENNAN J:	Thank you.
MR TREE:	Your Honour, in our submission, it is not the

characterization of the loss which is

determinative; rather the inquiry ought be made as

to whether the proximity exists with respect to the allegedly negligent class of act and the particular

kind of damage which the plaintiff has actually

sustained. That proposition is taken from

Your Honour Justice Deane's decision in Hawkins v

Clayton, (1988) 164 CLR 539. If I can take

Your Honours to that. Your Honour Justice Deane's
comments appear at page 576.	Towards the bottom of

the page Your Honour has cited a passage from the
majority in San Sebastian and Your Honour then goes

on to say:

Implicit in that passage is the recognition

that the requisite relationship of proximity

must exist with respect to the allegedly

negligent class of act and the particular kind
of damage which the plaintiff has actually

sustained.

Our submission here is this, that the result in

this case ought not depend upon some skilful

argument or pleading, to quote Your Honour

Justice Brennan; it ought depend upon an

Bryan(2) 33 24/3/94

appreciation of the nature of the loss and an

inquiry as to the relationship between that loss

and the negligent act complained of. So that

whilst other courts may place great emphasis upon

this categorization, it is our submission that in this Court there is authority for the proposition

that whilst it is a relevant factor, it is not

determinative.

Your Honours, can I turn to point 3, and that

is the proposition that proximity is not to be
found just in a relationship between the parties,

but in review of all the factors connecting the

negligent act with the loss. I am mindful that,

for instance, in the passage which I have just read

of Your Honour Justice Deane in Hawkins v Clayton,

Your Honour is speaking about a relationship of

proximity, and this proposition may at first blush

seem to be not perfectly consistent with that.

Can I take Your Honours to Sutherland v

Heyman. There at page 441 in the decision of the

then Chief Justice, a little over two-thirds of the

way down the page, His Honour says:

In dec±ding,whether the.necessary relationship

exists, and the scope of the duty which it

creates, it is necessary for the court to

examine closely all the circumstances that

throw light on the nature of the relationship

between the parties.

Before leaving that, can I take Your Honours also

to page 497 to page 498, Your Honour

Justice Deane's decision. This is the passage upon

which my learned friend seems to base his argument

in respect of the types of proximity. There

towards the conclusion of the page Your Honour

says:

The requirement of proximity is directed to the relationship between the parties in so

far as it is relevant to the allegedly

negligent act or omission of the defendant and the loss or injury sustained by the plaintiff.

It involves the notion of nearness or

closeness and embraces physical proximity (in
the sense of space and time) between the
person or property of the plaintiff and the

person or property of the defendant,

circumstantial proximity such as an overriding
relationship of employer and employee or of a
professional man and his client and what may

(perhaps loosely) be referred to as causal proximity in the sense of the closeness or

directness of the causal connexion or

relationship between the particular act or

Bryan(2) 34 24/3/94

course of conduct and the loss or injury sustained.

So that, whilst Your Honour is there speaking

about, in the first sentence, a relationship

between the parties, clearly, in discussing causal
proximity, Your Honour has widened the ambit of
inquiry beyond the relationship between the parties

per se to a consideration of the closeness or

directness between the act and the injury.

This is perhaps most highlighted in the decision of the Canadian Supreme Court of CNR v

Norsk Pacific Steamship, 91 DLR (4th) 289. There

at page 370 to page 371, in the decision of

Justice McLachlin, Her Honour proceeds at the base of page 370 to say this:

In many of the cases discussed above, the

judiciary has focused upon the relationship

between the tortfeasor and the plaintiff as an

indication of proximity, a focus closely

related to the foreseeability analysis

inherent to all negligence actions. In the

classic case of Hedley Byrne, the reliance

,.analysis ·focases· ,upon the connection between

the party who made the negligent misstatement

and the injured party, ie, is that plaintiff a

party that the tortfeasor ought reasonably to

have foreseen would rely on his or her

statement? The judgments below focused on the

relationship between the tortfeasor Norsk and

the plaintiff C.N. both within and outside

their discussion of proximity. A more

comprehensive, and I submit objective,

consideration of proximity requires that the
court review all of the factors connecting the
negligent act with the loss; this includes
not only the relationship between the parties

but all forms of proximity - physical,

circumstantial, causal or assumed indicators

of closeness.

With respect, we adopt that passage of

Your Honour's judgment as being indicative of the

law in Australia.

Your Honour Justice Deane, in Hawkins v

Clayton, at page 577, in the parargraph commencing towards the bottom of the page, says that:

The identity and relative importance of

the factors which are determinative of the
existence of a relevant relationship
ofproximity vary in different categories of
case ..... It is so with respect to the factor

Bryan(2) 35 24/3/94

of physical nearness, in the sense of space

and time.

So that from category of case to category of

case, whilst it is useful to review whether lists
or items in lists contained in various judgments

have been satisfied, that would be insufficient, in

itself, to add up the number of ticks or the number
of crosses, so to speak, because the significance,
the relative importance of those factors, will vary

from the category of case to the category of case.

Can I turn to the factors which, in this

particular case, in our submission, establish

proximity. The first, in our submission, is causal

proximity which Your Honour Justice Deane in

Sutherland said, "was a closeness and directness

between the allegedly negligent act and the loss of an injury sustained," the passage which I have just

taken the Court to a few moments ago. Here, in our submission, it is a direct cause. The direct cause

of the plaintiff's loss is the defendant's failure

to take the footings down to a reasonable depth.

Now, Your Honour Justice Brennan, this

morning, has already noted · a·s to the aspects or the
things which the plaintiff was compensated for, in

the light of an architect's report. That estimate

actually appears at page 348 of the appeal book, if

I can take Your Honours to that. Your Honours will

see that that is a report from the architect to

myself and there he subdivides his estimates, and

Your Honours will see that the principal amount

which is contained there is the actual underpinning

of the cavity walls, and that it is only far

smaller amounts which are applied making good the

manifestations of that principal defect. So that,

as regards the bulk of the damages awarded to

Mrs Moloney, that is the underpinning, that is to

remedy the primary defect, namely, the failure to

take those footings down to an adequate depth. At

one further extraction, the cost of the repairs to	the manifest deficiencies or the manifest cracks
and so forth.

My point is this, that that is a far closer

causal connection than if, for instance,

Mrs Maloney had been conducting a business in the house and was claiming some loss of profits arising

from an inability to conduct the business at the

house. That would clearly be a far more causally

remote damage than the primary cost of remedying

the primary defect.

If one was to take the situation of a

negligent driver who was involved in a collision

which causes a bank up in traffic and as a result

Bryan(2) 24/3/94

of that someone is incapacitated from, or unable to

attend, a meeting and by virtue of that they have

lost an opportunity to earn a profit from a

contract or something along those lines,

Your Honours can see that that is, as a matter of

causation, a far greater remove than the primary

remedy here, or the primary award of damages here.

Your Honours, the second factor which, in our submission, is critical in this case is the policy

factor. That is clearly a consideration arising

from Your Honour Justice Deane's decision in

Sutherland, at page 498, where Your Honour talks

about policy considerations. Our proposition is,

Your Honours, that there can only be one plaintiff and one recovery, and I come back to my answers to Your Honours Justice Brennan's questions this

morning where implicit in my answer to Your Honour

was the proposition that there can only be one

plaintiff and there can only be one recovery.

BRENNAN J: Why?

MR TREE: Because the cause of action, Your Honour, vests

with the person who is the owner at the time that

the defect becomes manifest.

BRENNAN J:  Your postulation becomes the conclusion. Why,

as a matter of duty is this duty not owed to any

future owner of the house or, for that matter, for

the first owner of the house?

MR TREE:  As a matter of general statement, I would adopt

what Your Honour says, the duty is owed to the

original owner and to subsequent owners.

BRENNAN J: 

Why then is there not a cause of action if the

duty is breached and owner A has to repair the
cracks in the bedroom; owner B the cracks in the

bathroom; owner C the cracks in the dining room?

MR TREE:  If the action were simply for the remedying of

manifest defects without remedying the underlying

cause, then perhaps my answer to Your Honour's

questions previously would need to be revised. I

was assuming in my answer to Your Honour's previous

questions that the action was not only to cover up
the cracks, or to pay someone to paste up the

cracks, but was to remedy the principal defect.

BRENNAN J:	Then what if the damages given to owner A, and owner A then sells without repairing to owner B?
Then, on the assumed facts which would exist in that case, namely that the damage had manifested
itself, owner B would not have a cause of action as
reasonable examination of the building would have

Bryan(2) 37 24/3/94

disclosed the manifest defects. And it might also

be the case, Your Honours, that, as a matter of
policy, a derivative purchaser could not be placed

in a better position than the original owner of the

structure.

BRENNAN J:	I understand.
MR TREE:	Your Honour, can I at this stage foreshadow an

American decision which I will take Your Honours to

subsequently, which exactly is decided on the

factual situation which Your Honour puts forward,

namely, recovery by the original owner, a sale, and

in that case the court allows recovery by the

subsequent purchaser as well. It would not be

implicit, in our submission, that this Court ought

necessarily adopt that answer, but certainly the

reasoning which the Court undertakes in that case

is illustrative and, as I say, I will take

Your Honours to it shortly.

Your Honours, the consideration as to whether

there is only one plaintiff and one recovery is, in

our submission, critical in assessing the way in

which the court will approach a plaintiff's claim.

Can I	take Your Honours . to. ;an. arti:c le by
Andrew Grubb.	The name of the article is "A Case

for Recognising Economic Loss in Defective Building

Cases". It appears in 1984 of the Cambridge Law

Journal, page 111. There at the bottom of page 118 is the heading "No recovery of purely economic loss in negligence". There the author says:

Judicial reluctance to recognise claims in

negligence for purely economic loss sterns from

policy considerations. Judges have feared
liability "in an indeterminate amount for an
indeterminate time to an indeterminate class":

in other words, the prospect of defendants

paying excessively compared to their degree of

fault has proved fatal to claims. What are

the courts really afraid of here? Is it an	indeterminate amount or an indeterminate class
of plaintiffs? Surely it is the latter. The
law raises no objection to a defendant being
liable for the multiple injuries caused to
many passengers injured in a coach in a
motorway accident. Of course, it could be
argued that here at least the number of
potential plaintiffs is known, even if the
eventual cost to the defendant is not. Sums
may escalate and the defendant's liability may
rise to a level out of proportion to his lack
of care in his inadvertent driving. What the courts really need to know is how many individuals could litigate and claim against a given defendant. This point seems to have

Bryan(2) 38 24/3/94

been overlooked by the courts until relatively

recently in the development of the negligence
action. Unable to find any way of limiting

the range of plaintiffs who can recover for

pure economic loss they have responded by

refusing to allow any recovery at all.

Once the courts did find a way of

limiting the range of plaintiffs their

reluctance to allow claims began to disappear.

Thus in Hedley Byrne & Co Ltd v Heller &

Partners Ltd (the first case where liability for purely economic loss was allowed), the court restricted potential plaintiffs to those

whom the defendant knew or ought to know would

rely on his negligent statement and by
requiring a "special relationship" to exist

between the litigating parties.

Continuing at page 120,there the author continues:

Even when more than a single individual may

suffer economic loss, recovery has been

allowed, providing that the potential

plaintiffs form a limited class of similar

individuals, such as·potential investors in a

company. The latter situation still keeps

liability for economic loss within reasonable

bounds and is consistent with the policy

no objection in principle to the recovery of pure economic loss.

considerations which were referred to earlier. is

Now the approach of the author in that case has the
sanction of Your Honour the Chief Justice in the

Sutherland decision at page 465. There, in the

final paragraph of that page, Your Honour says

this:

The proposition that in general damages

are not recoverable for economic loss unless

it is consequential upon injury to the

plaintiff's personal property is by no means

absolute or inflexible; it is a reflection of

the law's concern about endless indeterminate

liability. In the absence of any such concern

in a particular class of case there is no

necessity to give effect to the proposition.

Our submission therefore is, Your Honour, that this

is a class of case in which there being only one

plaintiff, there is no necessity to give effect to
the proposition.

The fear which I have spoken of is openly adverted to in the decision of Her Honour

Bryan(2) 39 24/3/94

Justice McLachlin in the CNR case at page 365. I

will not take Your Honours to it. There is a
similar advertence to this fear in the decision of

Justice Stephen in Caltex at page 573 to page 574.

MASON CJ: But this really is not the class of case where

that looms very large on the horizon. I mean, it

is not like destruction or damage to a bridge which
may conceivably affect tens of thousands, hundreds
of thousands of people, who may suffer economic

loss of some kind.

MR TREE: That is so, Your Honour.

MASON CJ: Here you are dealing with a very limited class:

owners, occupiers of a particular building and

perhaps some people who may perhaps have

contractual and other relationships with them.

MR TREE:  Yes, we would entirely agree with that

proposition, Your Honour, yes.

Your Honours, turning to additional policy

factors, can I take Your Honours to the decision of

Lempke v Dagenais, 547 A 2d (NH) 290. It is a

decision which Your Honours will appreciate has

been heavily relied upon both by the trial judge

and by the Full Court below. Although I will deal

with the American position more fully in a short

moment, Your Honours will already appreciate from

my outline that there are two competing avenues for

recovery by subsequent purchasers against builders

in the United States. This decision favours the

recovery upon an implied warranty, a transmissible

warranty, and the policy considerations which are adverted to by this Court are made in the context of that transmissible warranty rather than in the context of an action in negligence and, in fact,

here the court positively refuses to allow an

action for recovery of economic loss in negligence.

None the less, both Sir Robin Cooke, who seems

to have first alerted the common law world to this

set of policy factors in his article, and the trial

judge, whilst accepting that proposition, none the

less adopted these policy reasons as being some of

the bases in policy for allowing recovery in

economic loss as well. If I can take Your Honours

to page 294. There, at the top of the second

column on the page, the majority judges say:

Numerous practical and policy reasons

justify our holding. The essence of implied

warranty is to protect innocent buyers. As

such, this principle, which protects first

purchasers as recognized by Norton v Burleaud,

is equally applicable to subsequent

Bryan(2) 40 24/3/94

purchasers. The extension of this principle

is based on "sound legal and policy

considerations." Terlinde -

a case which I will take Your Honours to in due

course -

The mitigation of caveat emptor should not be frustrated by the intervening ownership of the

prior purchasers. As a general principle,

"the contractor should not be relieved of
liability for unworkmanlike construction
simply because of the fortuity that the

property on which he did the construction has

changed hands."

And His Honour cites an authority in support of

that.

As the court in Moxley said -

a decision which again I will take Your Honours

to - - -

MASON CJ: But do we need to go to all these American cases?

-MR TREE:  r--propose to take Your Honours on1y to five

American cases which are representative, in my

submission, of the position in the United States.

They are perhaps effectively summarized in one of

the academic articles which I will take

Your Honours to and, indeed, my submissions have had considerable benefit by reference to that

article and perhaps it is unnecessary to take

Your Honours to those cases if Your Honours are

content to - - -

MASON CJ:  We can go to them ourselves and it may be

sufficient for your purposes if you give us the

references and take us to this article which you

say conveys a sufficient summary of them.

MR TREE:  I will do that, Your Honours. Your Honours, can I

take you then to page 295. There the five policy

factors are articulated:

First, "common experience teaches that

latent defects in a house will not manifest

themselves for a considerable period of

time ... after the original purchaser has sold

the property to a subsequent unsuspecting

buyer."

And I pause there to observe that that is one of

the worst characteristics of latent defects and

perhaps one of their principal characteristics,

that they are not immediately manifest, that their

Bryan(2) 41 24/3/94

manifestations take time.	The second policy factor
is that:

our society is rapidly changing.

The court goes on to deal with the proposition that the society is:

an increasingly mobile -

one.

Furthermore, "the character of society has changed such that the ordinary buyer is not in

a position to discover hidden defects .... "

Again the Terlinde and the Redarowicz decisions are

cited. And I pause simply to say that those

considerations are equally applicable, in our

submission, to our society.

Third, like an initial buyer, the

subsequent purchaser has little opportunity to

inspect and little experience and knowledge

about construction. "Consumer protection

demands that those·who buy homes are entitled

to rely on the skill of a builder and that the

house is constructed so as to be reasonable

fit for its intended use."

There I pause to say - - -

MASON CJ: Well, we can look at these for ourselves. They

seem statements of fairly obvious truisms. I would

not have really thought that it was necessary to
delve into the depths of American jurisprudence in

order to establish them.

MR TREE:  Thank you, Your Honour. Perhaps while I am in the

American jurisdiction, can I take Your Honours to

one decision which is striking, if only because

there, unlike the other jurisdictions of estates in

the United States, the court seems to adopt a

proximity test, and that is the decision of the

California Supreme Court in Huang v Garner,

203 California Reporter 800. That was a decision

in which the court held that a subsequent purchaser

did have an action against the builder for damages

for economic loss for a defective construction.

There it was not footings. At page 809 the damage

is adverted to, first column at the bottom:

Plaintiffs sought recovery for physical

damages to their property including damages to

the structure caused by deflected and cracked

beams and dry rot damages to the balcony area.

Plaintiffs also sought recovery of economic

Bryan(2) 42 24/3/94

losses including the cost to repair

firewalls -

and I pause to say that there the negligent

construction was the provision of inadequate

firewalls -

shear walls, fire stops, and other alleged

defects in the structure.

So that there were again, as in this case, two

types of damage: the principal repair and the

repair of manifestations or the consequences of

that.

At page 812 - can I pause to say there are significant passages at pages 810 and 811 - the

second paragraph commencing on the first column,

the court says:

Having determined that the plaintiffs

were not necessarily foreclosed in their

negligence action against defendants Garner

and Encinal Park, Inc from recovery for

economic damages, the question remains whether

piaintiff ·in this case has met· the criteria

set forth in Biakanja v Irving, and adopted by

the court in J'Aire for demonstrating the
"special relationship" between the parties
required for recovery of economic losses where

the parties are not in privity. Stated

otherwise, the question is whether we can
determine that defendants owed a duty of care
to plaintiffs by applying the Biakanja

criteria. As adopted in J'Aire, "those

criteria are (1) the extent to which the

transaction was intended to effect the

plaintiff, (2) the foreseeability of harm to

the plaintiff, (3) the degree of certainty

that the plaintiffs suffered injury, (4) -

and this is perhaps the most significant one - the closeness of the connection between the
defendant's conduct and the injury suffered,
(5) the moral blame attached to the
defendant's conduct, and (6) the policy of
preventing future harm."

Now, whilst there the court speaks in terms of a

special relationship, it is my submission that

clearly the test which is being spoken of there by

the court is really the proximity test, although

the factors may be slightly differently expressed.

Clearly the focus is upon the relationship between

the damage and the negligent act.

Bryan(2) 43 24/3/94

Can I pause simply to say that in so far as

courts have subsequently suggested that the
American position is that enunciated in the East

River Steamship Corporation case, which my friend

took the Court to yesterday, there are two

propositions which we suggest, Your Honours:
firstly that the East River decision was made in

the admiralty jurisdiction of the court and

secondly, that it relied heavily upon a California

decision of Seely, and Huang v Garner was, at the time of the East River decision, one of the clear exceptions to the Seely rule.

Now that has been dealt with in a decision of - again, a California decision, although on this

occasion it is one of the Federal Courts of Appeal.

I will not take Your Honours to the decision; I

simply alert you to it. It is a decision of

Aris Helicopters v Allison Gas Turbine,

932 F 2d 825, and a copy of it has been provided to

Your Honours, and there there is some discussion of

the interrelationship between East River and Huang

v Garner.

Your Honours, can I turn to the third policy proposition which we urge upon the Court ·and that

is that·justice requires that this loss be borne by

the person who failed to exercise reasonable care

rather than by an innocent subsequent purchaser.	n ·
In making that proposition, we rely heavily upon the notions of community justice spoken of by
Justice Stephen in the Caltex decision at page 575.
Whilst we concede that this is perhaps a loss apportionment approach, it is our submission that
community notions of justice, when faced with the prospect of an innocent purchaser airing the cost of repairing the negligent act of a builder, would
see that there ought be the notion of some blame
being attached to the builder and concomitant with
that blame the perception that he who is to blame
ought pay rather than a person who is not to blame
having to pay.
Your Honours, clearly reasonably foreseeable

reliance is one of the factors which the Court has most commonly dwelt on, most commonly adverted to,

in allowing recovery. Your Honour Justice Mason in

the Sutherland decision spoke of general reliance

and I wish to take the Court to that passage. It

is at page 463, commencing on the fifth line of the

first paragraph commencing on that page,

Your Honour says:

Several interrelated questions arise in

connexion with the concept of reliance as a

sufficient basis for the existence of the duty

of care in the class of case with which we are

Bryan(2) 44 24/3/94

concerned: (1) whether it is an essential

element in the concept (a) that there should

be conduct on the part of the defendant

contributing to the plaintiff's reliance, and

(b) that the plaintiff should act to his

detriment; and (2) whether the concept extends

to general reliance or dependence by those in
the position of the plaintiff, as distinct

from specific reliance by the plaintiff. The

last question is largely a reflection of the

earlier questions. It is positive conduct on

the part of the defendant or the plaintiff's

acting to his detriment which gives rise to
specific, as distinct from general, reliance

or dependence.

And Your Honour then goes on to deal with the

question of general reliance more specifically on

those fact on page 464. At the first paragraph

commencing on that page, Your Honour says:

If this be accepted, as in my opinion it

should be, there will be cases in which the

plaintiff's reasonable reliance will arise out

of a general dependence on an authority's

performance ·of its function with due care,

without the need for contributing conduct on
the part of a defendant or action to his

detriment on the part of a plaintiff.

Reliance or dependence in this sense is in

general the product of the grant (and
exercise) of powers designed to prevent or

minimize a risk of personal injury or

disability, recognized by the legislature as

being of such magnitude or complexity that

individuals cannot, or may not, take adequate

steps for their own protection.

Now that passage was seized upon by His Honour

Mr Justice Connolly in the Full Court in Queensland in the National Mutual Life decision,

(1991) 2 Qd R 406, and if I can take Your Honours

to that decision. At page 406 His Honour says,

dealing with Sutherland:

Justice Mason at 461 et seq noted that reliance has always been an important element

in establishing the existence of a duty of
care and that the concept of proximity as

explained by Justice Stephen in Caltex and

Justice Deane in Jaensch involves in most

cases a degree of reliance; and at 464

His Honour observed that there will be cases

in which the plaintiff's reasonable reliance

will arise out of a general dependence on an

authority's performance on its function with

due care, the reliance being in general the

Bryan(2) 24/3/94

product of the grant of the power to regulate.

His Honour continued - "This situation

generates on one side (the individual) a
general expectation that the power will be
exercised; and on the other side (the

authority) a realization that there is a
general reliance or dependence on its exercise
of power". This is not of course a case of a

public authority -

and there His Honour is talking about the specific

facts before him which dealt with an action against

an engineer -

and the extent to which it may relevantly be

said that a subsequent purchaser relies on the

due exercise of professional skill and

judgment by designing engineers is not the
subject of binding decision in Australia.

Nevertheless there are powerful reasons for

believing that such a duty is owed and that

succession to the ownership of the subject

matter of the professional design should be

regarded as creating a relationship of the
necessary proximity .. The reliance which a

_prospective purchaser of a building, which is

seen to be standing in apparent good order, on

the exercise of due care by the doubtless
unknown designers and builders is at least as
real as the reliance placed by the public on

the due performance of public duties.

Whilst at that decision can I simply say that at

page 407, towards the bottom of that, His Honour,

as I think Your Honour the Chief Justice adverted

to yesterday, there is of the view that D & F

Estates is in fundamental conflict with the line of

authority in this Court.

MASON CJ:  I should point out, Mr Tree, we have had a look

at the transcript of the special leave application

and the ground assigned by this Court for refusing

special leave to appeal from the Full Court

decision in that case did not amount to an

endorsement of the views expressed in the judgment.

The refusal was founded on the consideration that,

having regard to the way in which the question
arose in that case, it would not be appropriate at
that stage of the proceedings in the Queensland

court for us to grant special leave.

MR TREE:  I understand that, Your Honour; it was taken at a

pleadings point, I understand.

MASON CJ: Yes.

Bryan(2) 46 24/3/94

MR TREE:  Your Honours, this question of reliance was spoken

about by Justice Cooke, as he then was, in

Bowen v Paramount Builders; I will not take

Your Honours to it, because that was a decision in

which the loss was characterized as physical, and I

will deal with that decision more fully when I am

dealing with the position in New Zealand, and

clearly reliance was also dealt with in the

Lempke v Dagenais decision, which I have taken

Your Honours to, and in some other American

decisions.

The fourth matter which, in our submission, is

relevant to establishing proximity is the high

foreseeability of economic loss, and Your Honours

might recall that that was one of the factors of

proximity which was discussed by Their Honours

Justices of Appeal Pincus and Thomas in the

"Fiji Gas" case. Here, in our submission, it was

almost inevitable that the footings not having been

taken down far enough, that someone, at some time,

would suffer the loss of remedying that defect.

The building being improperly founded, it was

almost impossible, in our submission, to suggest

that someone, at some stage, was not going to have

to pay the cost of remedying that primary defect of

the structure.

Your Honours, the final point which we rely

upon in establishing proximity as physical

nearness - perhaps before I go on to that,

Your Honours, can I go back to the question of
reliance again and simply alert Your Honours to the

passages in the transcript which deal with

reliance. My friend yesterday took Your Honours to

some of the passages. They appear at appeal book

pages 12 to 13; appeal book pages 56 to 57 and 85

to 87. That is all the evidence of Mrs Moloney, which Your Honours were taken to yesterday. And

secondly, cross-examination of Mr Bryan at

pages 295 to 300. That was dealt with by

His Honour Justice Crawford at page 399 of the

appeal book in a passage which my learned friend

read to you yesterday. I will not read it again to

Your Honours, but there His Honour makes the

observation as follows:

Furthermore and despite the appellant's

attempts to avoid direct answers to questions

in cross-examination seeking to establish that

he was aware that there might be subsequent

purchasers of the house who would trust in his

workmanship, the appellant must have known, as
any reasonably competent and responsible
builder would have known, and he certainly

ought to have known, that any future owner of

Bryan(2) 47 24/3/94

the building would rely on his workmanship

having been performed with reasonable care.

So that in so far as there is a requirement that

the reliance be reasonably foreseeable, His Honour

Justice Crawford, on the basis of the passages

which I have alerted Your Honours to, had no

difficulty in saying that the evasiveness in

answering those questions did not count in

His Honour's view. With respect, we adopt that

passage in His Honour Justice Crawford's reasons as

the true basis for finding reliance here. There

His Honour also spoke about general reliance.

BRENNAN J:  Mr Tree, this seems to me to being very close to

an analogy, with the liability of a manufacturer of
ginger beer for snails in the bottle or

manufacturer of underpants for the consumer. In

other words, why should the court impose liability

necessarily on the builder as distinct from perhaps

the builder or any other party who is responsible

for the first defective construction of the house,

and why should the liability not be regarded as

maturing into a cause of action, when a person

comes into occupation or perhaps ownership of the

house without having had any prior opportunity of constructing in accordance with the defective
intermediate inspection, which would be the
appropriate test to apply to the consumer article?

contract and would impose the liability on the

builder or the architect or the first owner, as the

case may be.

MR TREE: 

Yes.

BRENNAN J: 

The liability then maturing into a cause of

action when, after a period in which intermediate
inspection was not practicable, the defect
manifests itself and the party suffers the loss of

making good that which was unknown.

If I understand Your Honour's question

correctly, Your Honour is suggesting that - and

perhaps Your Honour is taking up an observation
which, I think it was in Sutherland, Your Honour

made that subsequent purposes have no cause of

action - notwithstanding that there is no knowledge

of the defect that the duty is owed and it is

fortuitous if there is a sale prior to the

realization of the loss.

BRENNAN J: Yes, but that there is no duty relevantly owed

to the person who has engaged the builder

contractually other than arising out of a contract.

MR TREE:  Yes, that - - -

Bryan(2) 48 24/3/94

BRENNAN J: In other words, you regard that house as a

marketable object. That is only when it goes on to

the market and comes into the hands of one who has

suffered a demonstrable loss that the cause of

action matures.

MR TREE:  I accept that that is a competing alternative as

to when the cause of action arises. The question

of the relevance of contract was central to the that where the contract between the parties
difference between the majority and minority in the

established their respective positions that ought

be determinative. The approach of Her Honour

Justice McLachlin was different. She said that

that was one of the factors which ought be taken

into account in assessing whether or not this

relationship of proximity existed but that it was

not determinative.

I am conscious that there are some unreported decisions in New South Wales and, in fact, one

reported decision in the Australian Capital

Territory, which suggest that as between owners of

buildings and contractors and subcontractors the

terms of the contract preclude the arising of a

··duty of care in tort. In my submission, there are

two answers to that proposition, either that that

was a finding of fact on those particular facts

and by that I mean approaching it in the same way

as Justice McLachlin did. Her Honour looked at the

contract and took the view that, in those

circumstances, having reference to that contract,

there was no proximity or, alternatively, that the

approach adopted by the trial judge in that

instance is wrong in the sense that a contract is

only relevant, it is not determinative.

BRENNAN J:  I can only say for my part I cannot understand

how a builder who is bound by his contract to

observe an architect's direction can be held liable

direction, even though he knows that the	to a future purchaser if he accepts the architect's	architect's direction is to perform work which is
not in accordance with sound building practice, and
yet he is bound to accept that direction at risk of
being in breach of his contract. I do not
understand how a future purchaser can come against
that builder, as distinct from coming against the
architect.

MR TREE: There are two competing concepts there,

Your Honour. The first is that the structure is

subsequently held out, where it is certainly not

held out as being any thing other than a

well-constructed, and in a sense of goods,

merchantable, house.

Bryan(2)	49	24/3/94
BRENNAN J: Not by a builder.

MR TREE:  No, but in the market-place, Your Honour, that is

how it is presented.

BRENNAN J: Yes.

MR TREE:  If there has been some express direction given to

the builder then, in our submission, that would be

one of the factors to be taken into account by the

court in assessing the scope of the duty which was

owed. Not necessarily whether there was a duty,

but the scope of the duty.

BRENNAN J: That seems to me to make the fate of the

builders depend upon litigation miles down the

track, and thousands of dollars later, but I think

you have made your point.

MR TREE:  Your Honours, I was about to deal with the

consideration of physical nearness. My learned

junior has handed to me a decision which, perhaps,

partly assists in answering Your Honour's question.

It· is not a decision which I have handed copies of

to Your Honours, and I am not in a position to do

so. It is a·decision of Pierelli ·General Cable v

Oscar Faber, (1983) 1 All ER 65, and there is a

passage at page 71 in the speech of Lord Fraser.

At the bottom of that page His Lordship says:

While I see the force of that view I

cannot agree that it is one which is open to me to accept. I think the true view is that

the duty of the builder and of the local

authority is owed to owners of the property as

a class, and that if time runs against one

owner, it also runs against all his successors

in title. No owner in the chain can have a

better claim than his predecessor in title.

The position of successive owners of property

is, in my opinion, to be contrasted with that

of workers in a case such as Davie v New

Merton Board Mills Ltd -

Perhaps that does little more than add judicial

authority to the propositions which I have been

suggesting to Your Honours as to when the cause of

action accrues.

DEANE J: But why would not the considerations that

Justice Brennan put to you be of critical

importance in determining whose negligence caused

the building to be in its defective state? Which

means, I would have thought on the answer to the

question His Honour put to you, is obviously the

answer he suggested and that is that the relative

Bryan(2) 50 24/3/94

negligence, in those circumstances, is that of the

architect.

MR TREE: That is so, and the builder would, of course, have

his remedy to join the architect in as a third

party with the consequent alerting to the plaintiff

that perhaps there ought be a second defendant and,

perhaps, discontinuance against the builder in

those circumstances.

DEANE J: But is not the real problem - and it may be one

that we do not have to worry about in this case -

what if the relationship between owner and builder

is such that there is no relevant duty of care owed

by the builder to that owner? May it not be that if you are going to have any cause of action by a subsequent owner it may have to arise from other

circumstances such as concealment by the first

owner, or what have you?

MR TREE: That is so. There are, perhaps, two ways of

dealing with that, in our submission. The first is

that. it affects whether or not there is proximity

at all, that is, whether there is a duty owed or,

secondly, the scope of .. the .duty.

DEANE J: Say, for example, in this case the sister-in-law

had said to the builder, "Look, I can only afford

this much. Build me a house that will be all right

for ten years because then I will pull it down and

we will put up a proper double cavity brick." One

can see great problems there. Am I correct, there

is no suggestion of anything like that in this

case?

MR TREE:  Not that I am aware of, Your Honours.

DEANE J: Well, there was no defence raised or no suggestion

that there were special arrangements or no lack of

the ordinary duty of care of the builder?

MR TREE:  No, Your Honour, although I am given some pause in

that answer by my friend's reference, yesterday, to

passages of the transcript which deal about price

constraints.

DEANE J: And the builder's lack of experience, but

MR TREE:	I may deal with that a little later -
DEANE J:	I was not suggesting there is anything you have to

deal with there.

MR TREE:  Yes. I am proposing to deal briefly with the

that he was inexperienced but, with respect to the

suggestion that the builder was inexperienced.

Bryan(2) 51 24/3/94

evidence of Mr Bryan, that was not necessarily the

way in which he wanted the court to view him.

Your Honours, can I then turn to this question of physical proximity. That is dealt with by

His Honour Justice Crawford in the court below. At page 399 of the appeal book, that is volume II,

His Honour says, beneath the passage which I took

Your Honours to a few moments ago:

A sufficient relationship of proximity

exists on the facts in this case. There
exists a close proximity between each of the

parties and the house which is the subject

matter of the action, one party being its

builder and the other its owner.

There His Honour seems to be saying that the

overlapping relationships between, on the one part,

the builder and his house, and on the other part,

that same house and its owner, creates a physical

proximity, a physical closeness between them.	Upon
reflection, Your Honours, there is considerable

merit in that approach, with respect to His Honour,

because here Mrs Moloney is living in the structure

created by Mr Bryan and, in my submission, whilst

that is perhaps an unusual illustration of physical

proximity it is none the less an extension, and a

not unwarranted extension, of the concept of

physical proximity.

In so far as physical nearness contemplates temporal considerations, here there was some seven

years between the construction of the house and

when Mrs Moloney moved into the house and then only

some six months until the defect manifested itself

and, in our submission, that temporal proximity is

sufficiently close to allow the duty to exist here.

Of course, different considerations may well apply.

If, fortuitiously, say last century, a builder

which, perhaps by reason of incorporation is still	in existence, constructed a house and say recovery
was sought perhaps 100 years after the event, the
concept of physical proximity in so far as it
introduces temporal considerations may well preclude the existence of a duty in those
circumstances.

Can I turn to considering the position of the

House of Lords - - -

BRENNAN J:  How does anybody predict the operation of the

law if that is so? Given a set of facts in

counsel's chambers, what advice is given? After

eight years it is all right; after 10 it is too

late? Surely the law is not as much the

chancellor's foot or toe as that.

Bryan(2) 52 24/3/94

MR TREE:  I accept that the lack of certainty is one of the

criticisms to which Your Honour and others have in

respect of the notion of proximity.

BRENNAN J: Whatever might be said about the notion of

proximity, if what you are saying is that you

recover or you do not recover according to the

length of time that has elapsed, sometime is too
long and some is too little, it just seems to me,

whether you give the name of proximity or whatever,

it is a criterion without content.

MR TREE:  Your Honour, it would not be our submission that

temporal proximity on its own would be likely to

exclude the existence of a duty of care. It is a

total consideration of the relevant factors rather

than focusing upon one only and it may be that

perhaps the answer to Your Honour's question is to
be upon a reasonable construction of all the

circumstances rather than by focusing specifically

upon the question of time.

DEANE J:  But does it really help here? I mean, exactly the

same question would arise between the builder and

the f irs.t owner.

MR TREE: That is so.

DEANE J: A builder built a house for the first owner, it

developed cracks after five years, one would think

the answer would be one thing. If it did not

develop any cracks until 60 years, the answer would
be another, and counsel would be faced with the

same problem in his chambers, one would have

thought.

MR TREE:  Is Your Honour contemplating the same owner after

60 years?

DEANE J: Yes.
MR TREE:	Yes.
DEANE J:	The question would be whether the builder had been

guilty of negligence.

MR TREE:  I accept that that would be the principal

consideration in respect of the facts where there

was one owner after 60 years; I accept that,

Your Honour, yes, although clearly temporal

considerations would have to come into the overall

consideration.

DEANE J: Well, if you have an owner coming along 100 years

afterwards, I really would not think that you were

in the realm that one need worry about.

Bryan(2) 53 24/3/94

MR TREE: That is so, although it is necessary to, in our

submission, ascertain why that is so, and by

reference to - - -

GAUDRON J: It is because it is a well-built house. If no

defects have appeared for 100 years, it was a

well-built house. It is really very simple, there

is no negligence.

MR TREE:  Yes, I accept that that is an almost inevitible

conclusion on those facts, Your Honour, yes.

Your Honours, can I deal with the position in

England, as it seems to be articulated in the

decisions of D & F Estates, Murphy v Brentwood and

The Department of the Environment v Thomas Bates.

There, although there is perhaps an evolution of

the opinions through the speeches, particularly of

Lord Bridge and Lord Oliver, there seems to be,

certainly at the conclusion of Murphy, some

ascertainable position and that is, firstly, that
there is a general exclusionary rule against
recovery for economic loss, and that is clearly a

distinction between that court and this in that, as

a general statement, there is an exclusion for

economic loss and further - I am sorry, I perhaps

should qualify that by saying that it is economic

loss which is not consequential upon physical

damage - although there is an exception adverted
to, particularly in the speech of Lord Oliver,

about the existence of reliance and proximity.

Now, although I will deal critically a little

later with the approach of Their Lordships, none

the less that does appear to be the approach which

has been adopted, namely this general exclusionary

rule with an adoption of Your Honour

Justice Brennan's approach seemingly of incremental

extension of the recognition of duty of care, but
at the same time the incorporation of the notion of

proximity. There is also the conclusion by

Their Lordships that a subsequent purchaser does

not have a relationship of proximity with the

builder. As I say, I will return to those

decisions in a little while to discuss them more

critically.

Continuing to look at other jurisdictions, can

I move to the United States. There, as I have

already alerted Your Honours to, there seem to be

two potential avenues of recovery, and perhaps some

statutory based recovery as well. That position is

effectively summarized in an article by Michael Lieder, the article is entitled

"Constructing a New Action for Negligent Infliction

of Economic Loss: Building on Cardozo and Coase,"

(1991) Wash L Rev 937, and at page 954 under the

heading, Part III A Babel of Voices, the author

Bryan(2) 54 24/3/94

proceeds to review, seemingly as at 1991, the

position in the United States, and suggests,

firstly, that recovery can be on the basis of -

Negligence but Not Warranty -

and there the author cites California as the

illustration. Secondly, and now I am at page 958:

Implied Warranty but Not Negligence.

Thirdly, apparently a peculiar position in the

State of Washington where negligence is based on

the risk of physical injury. Then a position in

Georgia of negligent misrepresentation. Both

warranty and negligence; and finally, neither

negligence nor warranty, and that seems to be the

position in New York, although can I say that in

New York there appears to be a statute which allows

the transmissible warranty, so that the

transmissible warranty exists as a matter of

statute.

MASON CJ: But does this not illustrate the detriments of

going to the position in the United States? I

mean, ·there-·are so many conflicting .approaches.

MR TREE: That is so, and that is why we have focused our

submissions on the decision in California where the

proximity test appears to be adopted, albeit, by a

different name. The other answer, perhaps more by

way of comment in respect of Your Honour's

observations, is that, notwithstanding that

complexity that traditionally associates itself

with consideration of the American position, that

seems to have been a critical factor in the
criticism which Their Lordships have of Bowen v

Paramount Builders, based upon Their Lordships'

understanding of the American position as regards

chattels, and presumably following from that

position of chattels, the position as regards

recovery in respect of economic loss for houses.

The position in Canada, if I can move to that,

Your Honours, is to be found in the decision of

CNR, which I have taken Your Honours to. It seems

there that, firstly, the Supreme Court of Canada

has adopted the notion of proximity. At page 369

in the decision of Justice McLachlin it is clear

from that passage or from that page, that there

Her Honour is adopting the test of proximity.

Perhaps one distinction between the Canadian

position and the Australian position is that the

court does not seem to have avowed the prospect of

proximity being a prerequisite to the existence of

duty in all negligence action. There Her Honour

Bryan(2) 55 24/3/94

seems to be restricting her comments to the case of

economic loss.

The other observation which we make about the

Canadian position is that there the two-stage test

in Anns still seems to be the approach of the

courts, and the question of policy does not appear

to arise in assessing whether or not proximity

exists. Rather, proximity is found to be

established without recourse to questions of

policy, and then a second inquiry is undertaken as

to whether, as a matter of policy, there ought be

some restriction of the duty which exists. That is

apparent from the way in which Her Honour

approaches the particular facts before her.

I am mindful that my learned friend has

adverted, not in his address, but in his list of

authorities, to a decision of Winnipeg Condominium v Bird Construction, 101 DLR (4th) 699, but I will

not take Your Honours to it. I am reading from the

headnote which condenses the facts:

An apartment building was constructed in

1972, and the plaintiff became the owner of it

in 1978. In 1989, a section of exterior stone

cladding collapsed, necessitating repairs.

The plaintiff brought an action against the

company that had acted as general contractor

in 1972 -

There the Manitoba Court of Appeal denied recovery,

following D & F Estates and Murphy v Brentwood and,

although there is reference made to the CNR

decision, at page 704 there appears the passage:

I can think of no good reason why the decision in D & F Estates should not be

accepted as a strong persuasive authority were

it not for the fact that Lord Bridge, and

Lord Oliver in his separate concurring

reasons, expressly criticized the earlier

decision of their predecessors in Anns v

Merton London Borough.

Ultimately there the court is of the view that there is no sound reason for not following the

House of Lords.

Can I pause to say that I have spoken with counsel for the respondent in that case, and

Your Honours will note at the foot of the decision

there is a note that an application for leave to

appeal to the Supreme Court has been filed. In

fact, leave has been granted, and I am told that

the appeal is to be heard either in June or October

of this year.

Bryan(2) 56 24/3/94

Can I then turn to the position in New

Zealand, Your Honours, which is as expressed in

Bowen v Paramount Builders, (1977) 1 NZLR 394. The

decision has been extensively referred to by

Their Lordships in the Murphy v Brentwood decision,

and although there the focus is largely placed upon

the judgment of the President in that case, can I

take Your Honours to the decision of Justice Cooke,

particularly at pages 423 and 426. There, although

His Honour classifies the defective footings as

being physical damage rather than economic, at page

423 a little over half-way down, His Honour,

notwithstanding that categorization, goes through

what would nowadays be called an assessment of

proximity. He says, this is at line 33:

One of the submissions of Mr Webb for the

builder was that the principles of the law of

negligence could not be applied in this case

in a way of enabling the court satisfactorily

to circumscribe the effects in other

situations of a decision in favour of these
purchasers. As to that, the particular facts

of this case do not require decisions of some

far-reaching questions. The proximity or

propinquity between the·p.l.aintiffs and the

builder, though not contractual, is close.

He goes on to state the reasons as to why he is of

that view. So that notwithstanding the fact that

there is categorization of the damages physical,

His Honour still goes through a proximity test. At
page 426 of the decision, at the top of the page

His Honour adverts to a "Law Commission" report and

cites a passage appearing in it:

"He should be entitled to rely on the diligence and skill of those whose work has

gone into the provision of the dwelling and he

should have a remedy if the dwelling proves to

be defective".

And he goes on and makes the comment:

Although the Bowens were not buying from the

builder, I think the spirit of those
observations applies here. For much the same

reasons, I agree that causation is not here a

real problem and that there was no nevus actus

interveniens.

So that, there, His Honour also,

notwithstanding the fact that there was
categorization of the loss as physical seems to
place some significance upon his conclusion in that

subsequent purchasers are entitled to rely upon the

builder.

Bryan(2) 57 24/3/94

Your Honours, can I return then - perhaps

before I leave New Zealand I ought to say that

there is some review of the position in New Zealand

undertaken by Sir Robin Cooke in his article, "An and there, whilst I do not take Your Honours to

that, I simply observe that there has never been

any doubt in New Zealand as to the correctness of

Bowen v Paramount Builders and, although the law in

New Zealand has developed somewhat in respect of

economic loss, it is still apparent that the

two-stage approach in Anns appears to be the
procedure undertaken by the Supreme Court of New

Zealand.

Can I then turn to assessing the approach of the House of Lords. Your Honours, firstly can we

make the observation that the way in which the start with this broad exclusionary rule, which is of course, as I have already observed, in quite

stark contrast with the approach of this Court.

And in fact the approach which Their Lordships

undertake is a very different approach from that

which this Court undertook in, for instance, the

Heyman .decision.

With respect, peculiarly, the way in which

Their Lordships approached the problem of the liability of a council is to assess the liability of a builder and, in ascertaining the liability of builders, look towards the liability of

manufacturers for chattels. In our submission,

that is reflective of the approach of

incrementalism where the courts look at the

established categories and find whether there is

some similar set of circumstances in the fresh

category, and incrementally extend the categories

by reference to the existent categories.

considers the way in which this Court approached That is brought into contrast when one	the problem in Heyman, where there was no direct
consideration of the position of a builder, and certainly the Court does not, on my reading of the decision, seem to have taken any strong stance as
to the position of manufacturers of chattels.
Clearly, in assessing it from a proximity
situation, the Court ought be asking is there
proximity between the plaintiff and the defendant
or between the negligent act and the damage, rather than as approaching it from an incrementalist
position, assessing whether or not there is some
other category of case which is similar which
justifies or does not justify recognition of a duty in this instance.

Bryan(2) 58 24/3/94

Your Honours, there is also clearly,

particularly in the speeches of the Lord Chancellor

and Lord Keith, a position adopted by

Their Lordships as regards the relative roles of

Parliament and the courts. Can I take Your Honours

to them; this is in the Murphy decision. Firstly,

at page 457 in the speech of the Lord Chancellor,

there His Lordship says, in the second paragraph

commencing on that page:

Faced with the choice I am of the opinion

that it is relevant to take into account that

Parliament has made provisions in the
Defective Premises Act 1972 imposing on

builders and others undertaking work in the
provision of dwellings obligations relating to

the quality of their work and the fitness for

habitation of the dwelling. For this House in
its judicial capacity to create a large new

area of responsibility on local authorities in

respect of defective buildings would in my

opinion not be a proper exercise of judicial

power.

A similar observation is made by Lord Keith at

page 472E. There .His Lordship s:a.ys:

It is also material that Anns has the effect of imposing upon builders generally a

liability going far beyond that which

Parliament thought fit to impose upon house builders alone by the Defective Premises Act 1972, a statute very material to the policy of the decision but not adverted to in it. There

is much to be said for the view that in what

is essentially a consumer protection field, as

was observed by Lord Bridge of Harwich in

D & F Estates (1989) AC 177, 207, the precise

extent and limits of the liabilities which in

the public interest should be imposed upon

builders and local authorities are best left

to the legislature.

Now, can I hand up to Your Honours, albeit a poor

copy, a copy of the Defective Premises Act.

MASON CJ: What are we going to gain from this, Mr Tree?

MR TREE: Section 6(2) of that Act is in these terms:

Any duty imposed by or enforceable by virtue

of any provision of this Act is in addition to

any duty a person may owe apart from that

provision.

This is one of the criticisms which Sir Robin Cooke

makes in his article, that there the statute does

Bryan(2) 59 24/3/94

not purport to exclude the operation of the common

law, but rather it is designed to be complementary

to it and, in our submission, it is, with respect

to Their Lordships, an unusual approach to be

tailoring the common law to fit into the statutory

framework, especially in the circumstances where

the statute itself expressly contemplates the

existence of other remedies.

The second proposition which we wish to make

in respect of the approach is that Their Lordships

do not seem to have had the benefit of any of the

Australian decisions after Sutherland, and that is

apparent not only by reading Their Lordships'

speeches but also by looking at the list of

authorities which appears in the front of the

report. That is perhaps unfortunate, because of

course this Court had developed the notion
considerably since Sutherland, especially in

decisions such as Hawkins v Clayton, where the

Court has positively espoused considerations other

than reliance, which is of course one of the

fo~uses which Lord Oliver places upon the exception

which may exist in the existence of a special

relationship.

Thirdly, Their Lordships, while seeming to

prefer and certainly logically adopting Your Honour Justice Brennan's approach, that is the incremental

approach which it seems to be known as, there is

also extensive reference, particularly in the
passages of Lord Bridge and Lord Oliver, to the
notion of proximity and to the suggestion that

proximity will establish special relationships.

But it seems to be in the context of special

relationships which will justify an incremental

extension, and to that extent they seem to be, with

respect, using the term "proximity" to categorize

the circumstances which would justify an

incremental extension, which is perhaps a different

approach from that which is adopted by this Court

where proximity is not seen as being the fact as

justifying an incremental extension, but justifying

the recognition of a duty of care at all.

MASON CJ:  Is there not a later decision of the House of

Lords in which they adopt a proximity approach;

Allcock or Allport? Now, it may be that that

adoption of the proximity in that case is confined

to cases not involving economic loss, but I had

thought there was a later case in the House of

Lords in which, at least in the non-economic loss

area, Their Lordships had moved towards a proximity

approach.

Bryan(2) 60 24/3/94

MR TREE: Unfortunately I cannot assist Your Honour.

Your Honour is undoubtedly correct that the case

exists.

MASON CJ:  I would not say I am undoubtedly correct. I have

not got a very precise recollection of this.

MR TREE:  Your Honour, certainly the approach of the trial

court subsequently has been to apply the proximity

test, and perhaps there if I can take Your Honours

to a subsequent decision which is

Nitrigin Eireann Teoranta v Inco Alloys,

(1992) 1 All ER 854, a decision of Justice May.

There at page 858 the observation is made, the

second line:

A plaintiff claiming in negligence cannot normally recover pure economic loss unless

there is a special relationship with the

defendant amounting to reliance.

And subsequently throughout the decision there is reference as to the position of the House of Lords,

and there seems to be in fact a proximity

assessment undertaken there by the trial judge. So

that in response to Your Honour the Chief Justice's

question, it would seem that certainly the approach
of that court was to apply perhaps a slightly
narrower approach, but certainly a proximity

approach in assessing the existence of a duty.

Your Honours, one of the passages in

D & F Estates at page 205H in the speech of

Lord Bridge deals with the position in the

United States. Perhaps it really commences at page 204, where His Lordship first deals with the

position of the Supreme Court of the United States

in East River. At page 205, after having cited

extensively the East River decision, His Lordship

makes the observation:

This appears to undermine the earlier American

authorities referred to by Richmond Pin the

New Zealand case of Bowen v Paramount

Builders -

The difficulty is, as I have taken

Your Honours to the American position, is that

East River does not in fact articulate the American

position. Constitutionally, the State courts on

matters of tort are the final courts and, whilst
the Federal Courts may be called upon to exercise

or to consider State law, their obligation is to

actually apply the State law, and to that extent

the East River decision, which was of course in the
admiralty jurisdiction, is not binding upon the

State courts and in fact Your Honours will find

Bryan(2) 61 24/3/94

that there is, somewhat pithily made, that

observation in the Allison Jet Engines case which I

have referred Your Honours to.

So that whilst it is no doubt of assistance to

look at the reasoning of the Supreme Court, it is

not in any way, in our submission, determinative of

the position in the United States, and especially

considering the exceptions which exist to the

general exclusion for recovery for economic loss as

established in the building cases.

Your Honours, the criticism is made in an

article by O'Dair, and if I can take Your Honours

briefly to that article. The article is entitled

"Murphy v Brentwood District Council:	A House With
Firm Foundations".	The criticism is made at

pages 564 to 565 about the failure of the House of

Lords to deal with questions of policy. There the author says:

Little space is given in Murphy to the

relevant policy considerations. This is

indeed one of its most disappointing aspects -

this is at page 564:

It is clear however that the House of Lords

was troubled by the thought that the effect of

Anns was to make local authorities the

insurers of the obligations of construction
industry professionals and thus channels for

the distribution of consequential losses

throughout the community. Why, asked

Lord Oliver, could this function not be

adequately fulfilled by private insurance? In

the context of a judgment which assumes the

immunity in tort of the builder himself, this

must refer to private first party insurance

taken out by the occupier rather than private

and the author then goes on to critique the Two comments can be made -liability insurance taken out by the builder.

considerations of policy, which in his view ought

to have been adverted to by Their Lordships but

were not or, in so far as there were some
advertence to policy considerations, why they were
inadequate. With respect, we adopt that passage in

the article.

Put simply, Your Honours, the position as

articulated in the House of Lords is quite

different to that which is articulated in decisions

in this Court, both in approach and in result. The

question of a builder's liability in this Court

ought be decided according to the facts and

Bryan(2) 62 24/3/94

according to whether or not there is a relationship

for proximity existent between the builder and the

subsequent purchaser and not by reference to

considerations which may apply to, for example,

chattel cases or to considerations which may apply

to local authorities, or indeed to any other

possible category of case. Each category of case,

in our submission, needs to be determined according

to its particular facts, according to the test of

proximity and to whether or not proximity exists.

BRENNAN J: 

Do you contend that you have a concurrent

finding of fact here by both courts below on the
question of the existence of proximity?

MR TREE: 

Your Honour may be inviting me to - the answer is

yes. That would certainly be our submission,

Your Honour. Of course I am conscious that in two

of the decisions in the Full Court there is a

without reference to reliance. That seems to be

finding of reliance, and I am conscious that

the distinguishing feature between

Justice Underwood's approach and the approach of

Justice Crawford, but certainly all four judges

that have dealt with the matter have found the

existence of a relationship for proximity.

BRENNAN J:	So it is a question of fact, at all events.
MR TREE:	I wondered if Your Honour was perhaps going to

suggest it was a question of fact.

BRENNAN J: Well, the notion of concurrent findings does not

otherwise apply.

MR TREE:  No. The question as to whether or not proximity

exists, whilst it would certainly be my desire to

say to Your Honours that it was a question of fact,

is, in our submission, probably a question of mixed

fact and law in the sense that it involves

conclusions of law rather than conclusions of fact.

DEANE J:  You might lose what friends you have on this bench

if you start pushing proximity as a question of

fact.

MR TREE:  I accept what Your Honour says. Your Honours, can

I conclude by taking Your Honours to the final

passage of the article by Sir Robin Cooke, which
poses perhaps rhetorically, in our submission -

notwithstanding the fact that it is perhaps

rhetorically - the question which Your Honours

must, in our submission, take as being the critical

one in these instances. There, and, as we say,

perhaps rhetorically, in the final paragraph he

says:

Bryan(2) 63 24/3/94

The point is simply that, prima facie, he

who puts into the community an apparently

sound and durable structure, intended for use

in all probability by a succession of persons,

should be expected to take reasonable care

that it is reasonably fit for that use and

does not mislead. He is not merely exercising

his freedom as a citizen to pursue his own

ends. He is constructing, exploiting or

sanctioning something for the use of others.

Unless compelling grounds to the contrary can

be made out, and subject to reasonable

limitations as to time or otherwise, the

natural consequences of failure to take due

care should be accepted.

With respect we adopt that, and certainly, in our

submission, it is the principal consideration which

this Court has in deciding this case. If

Your Honours please, those are our submissions.

MASON CJ: Thank you, Mr Tree. Mr Charles.

MR CHARLES:  Your Honour the Chief Justice asked me

yesterday whether Sir Robin Cooke had said anything

in the article to which my learned friend was just

referring, on the question of the East River case

and whether that situation applied also in

New Zealand. His Honour was somewhat oblique on

that question but, if Your Honours have near you

the article to which reference has just been made,

at page 67 of 107 LQR, His Honour did deal with

this point in such a way, in our submission, as not

to say that Their Lordships were wrong but really

so what. What Sir Robin said was - - -

MASON CJ:  It must be the only point on which

Their Lordships were not wrong.

MR CHARLES:  Indeed so, Your Honour.

First, it would be feasible, though not

obligatory, to draw a distinction between
realty and personalty, as is traditionally

done in many branches of the law. The

liability of a manufacturer of goods need not

be the same as that of a housebuilder. Quite

apart from the fairly basic distinction

between land and chattels, generally speaking

a house is expected to last longer than a

product, though that is not invariably so.

Your Honours, on the question of East River, that

was dealt with by Sir Robin at pages 57 to 60 and,
while certainly the point is made that the decision

of the Supreme Court in this area is not binding,

Bryan(2) 64 24/3/94

none the less it is conceded at page 58 in the

centre of the page:

Nevertheless it may be supposed that the East

River Steamship case will be influential.

The American cases on house building are dealt with

in the article at pages 60 to 63.

MASON CJ: It is true to say, is it not, that Sir Robin

makes very clear his preference for those other

American cases?

MR CHARLES: Emphatically so, Your Honour.

MASON CJ: And he regards East River as leading the House of

Lords into error, because they were induced in the

earlier case in D & F Estates to depart from Bowen

v Paramount Builders by reason of their reliance on

East River.

MR CHARLES:  Yes. I accept everything Your Honour has just

put to me. That is indeed His Honour's view; defending vigorously the New Zealand Court of

Appeal's earlier decision in.Bowen.

Your Honours, if I can go to my learned

friend's outline for the purposes of reply, there

is one matter to which I wish to return in what was

put before, because Your Honour the Chief Justice

asked me yesterday to comment on what

Mr Justice Connolly said in National Mutual v

Coffey and I - - -

MASON CJ:  I do not know that I put the question in such an

open-textured way, as it were, giving you carte

blanche to explore Mr Justice Connelly's views

about this Court, Mr Charles.

MR CHARLES:  I emphatically did not intend to accept an open

invitation, Your Honour. I merely wanted to say

that the answer I gave to the Court yesterday to a
question which surprised me was distinctly
unhelpful to the Court and, in dealing with other

matters that my friend has raised in his address, I

wanted to go back, eliminate that answer and deal
with it in a quite different way.

We have nothing to say, Your Honours, about

the first four paragraphs of the submissions. Can

I take the Court immediately into the factors which

my friend says establish proximity and which are,

if we may say so, what this case really is all

about. We have nothing to say about the first

matter of causal proximity, though there is

nothing, we say, special about that. Either there

is causation or there is not. If there were not

Bryan(2) 65 24/3/94

causation, there would be no cause of action at

all. But when one then turns to policy

considerations, it is our respectful submission

that my friend's argument that there can be only

one plaintiff and one recovery is simply not

capable of being supported.

We took the Court in our argument yesterday to

what was said by Justice Brennan in Sutherland

Shire Council v Heyman. An example of a fact

situation in which one plaintiff was able to be

supplanted by another, is the South Australian case
of Miell v Hatjopoulos. There is the situation of
the damp course being bridged of the damage being

noticed before the subsequent purchaser purchased

the house. The difficulty as, we would submit, it

arises, is that in our submission it is very

difficult to say that there could be only one
course of action as my friend is really forced to

submit.

In a situation where, for example, the damage

had become manifest by virtue of cracking appearing

in the house and where the first owner, not

realizing how serious, let us say, the potential

damage to the house was, then either spackled over

the crack or papered over it and, assume for a

moment there was no fraudulent intent at all,

possibly with or without some compensation, again

possibly of a minor nature from the builder, it

would be understandable for the new owner to come

into possession of the house without knowledge of

that damage. In that situation, if otherwise a

cause existed, it would be surprising if those

circumstances prevented that new owner from being

able to take proceedings in relation to that. It

is our submission that there is potential for more

than one claim being made, certainly where damage

develops in different ways, but certainly also in

circumstances where the first owner has been

compensated monetarily and not applied the

compensation to the carrying out of the repairs.

A person living in a house obviously will have a very much greater ability to discover cracking or

defects, that person might accept the compensation

and then sell the house and the new purchaser might

have made a reasonable examination without becoming

aware of the defects in the house. Now, in those

circumstances, it seems to us inescapable if a

cause of action exists, that there can be more than

one claim.

BRENNAN J: If the cause of action is defined in terms of a

defect which is a patent defect and on the

occurrence of a patent defect a cause of action

accrues and up until that time there is no

Bryan(2) 66 24/3/94

possibility of intermediate inspections, to take
the language of the earlier cases, would it not be

possible to construct a cause of action which says,

so soon as reasonably detectable indicia of the

defect exist, then the person who owns at that time

is vested with the only cause of action that

exists.

MR CHARLES:  It would be possible, in that situation, if the

Donoghue v Stevenson line of thinking were to be

extended into this situation.

BRENNAN J: Yes.

MR CHARLES:  It would indeed be possible to extend the cause

of action in that fashion. None of the facts

necessary to establish whether or not there was the

possibility for intermediate examination are here

before the Court in this case. No one has

investigated whether any such facts might have been

discovered by the intervening purchasers. All that

the Court knows in this case is that the

examination made by Mrs Moloney was obviously a

fairly cursory one. The inspections were of the

order of 15 minutes and made without the assistance

of····any expert at .all.

BRENNAN J:  It was six months before she actually saw any

cracks.

MR CHARLES:	Yes.
BRENNAN J:	May not that be sufficient to found an inference

that there were none to be found prior to that

time?

MR CHARLES:  The difficulty, Your Honour, is how extensive a

proper intermediate examination ought to be for

this purpose. Very little information is, in fact,

before the Court other than the fairly bleak facts
which Your Honour has just described.	I do not

suggest that there is anything incorrect about

Your Honour's description of them. It is just that

they are not really apt to give any indication of

whether there was opportunity for discovery of

cracking at any earlier time. It may be that an

inference can be drawn but it is, we would say, a

somewhat skimpy basis for the drawing of an

inference.

BRENNAN J: Certainly there has been no direction to the

issue in the courts below, it does not seem.

MR CHARLES:  No, not at all, as Your Honour says.

Your Honours, in relation to the other matters upon which my friend has relied, for example, in the

matters extracted from Lempke v Dagenais and which

Bryan(2) 67 24/3/94

are helpfully set out in Sir Robin Cooke's article

at pages 62 to 63, Your Honour the Chief Justice

put to my friend that these were all reasonably

unexceptionable and obvious matters, and we would

certainly not take issue with the first two, at

least, of them.

The third matter, on the other hand, we would

submit, may be open to question, depending upon

whether the inspection that one has in mind is an

inspection with the assistance of someone at least
qualified as, say, a builder to give advice. It is

not known here whether, if a builder had gone with

Mrs Moloney to look at the premises, that

inspection might not have brought to light the
existence of potential defects in the dwelling.

As to the fourth matter, that the builder

contractor will not be unduly taken unaware by the
extension of warranty to a subsequent purchaser,

plainly builders nowadays will not be surprised in

any way by the fact that they may be liable under

legislation such as the Tasmanian legislation which

is now in force and which gives a right of action

for up to six years. What may, however,

Y.our Honours, be rather more surprising and

unsettling to a builder in these circumstances is

the possibility of action being taken not up to six
years after the building of a house but between
seven and, say, 20 or 25 years after the building

of a house, because we would submit that defects of

this kind are capable of appearing at any time

throughout that period.

I accept what was put to my friend that if the

first owner of the house is still there that cause

of action nowadays, as limitation periods are seen

to run, would still be available. But the fact

remains that many builders, as a matter of common

experience, of private residences are comparatively

small business people; they may find, in

circumstances where they are being forced to meet a
claim 20 or 25 years after the house was built,
that they have retired; that the problem of meeting
the cost is an enormously inflated money sum then

being required to make good the repairs to the

house.

Now, in those circumstances, Your Honours, it

is not so much the indeterminate number of

potential plaintiffs that is a matter of concern;

it is the indeterminate time at which an action of

this kind may arise and the indeterminate amount of

money that may be necessary to make good the

response to the discovery of defects at that time.

I accept what Your Honour the Chief Justice put

that one is not faced with an enormous class of

Bryan(2) 68 24/3/94

people. The indeterminacy is of a different

nature, in our submission.

The last matter, the question of arbitrary

interposition of a first purchaser as a bar to
recovery, we would submit, is not in this country

or has not yet been seen anywhere as being a

problem in relation to the taking of proceedings

against builders. It is something which may be a

problem in the United States but would not be a

factor here. In our submission, the matters which

are referred to in Lempke v Dagenais and which

Sir Robin Cooke placed such emphasis upon are

matters which would be of very considerable

significance to a legislature concerned about

whether to supply what were seen as deficiencies in

means of taking action against builders of

defective houses. It is a different question, of

course, whether they are appropriate as a basis for constructing or developing a cause of action in the

courts.

Now, Your Honours, when we come next then to

the question of justice which my friend relies on

in paragraph S(b)(iii) of his argument, that, it is

,submitted, is a.difficult question which is not as

easy as first appears. There does not seem to be

any doubt that Mr Bryan was a small - not in size -

builder of limited experience. It was, we would

submit with respect, not an easy task working out -

and I mean for the court at first instance - in
1992 whether Mr Bryan was negligent in 1979. It
was a case involving a conflict of evidence which

Mr Justice Wright, we would submit, when

Your Honours read the judgement will see, had at

least some difficulty in resolving. Reading the

judgment at first instance, we would submit, leaves one with at least some sympathy for the problems of

a builder who is fixed with a finding of negligence

when, in his inexperienced state, problems of

becoming generally known not very long before the	reactive clay soils in the Tamar Valley were only
building of the house, that is in the mid-1970s.
Turning then, Your Honours, to the question of general reliance which my friend dealt with next in
subparagraph (c), we accept, of course, that there
can be general reliance. However, what was relied on and what was said by Your Honour the
Chief Justice in Sutherland Shire Council v Heyman
at page 464, we would submit, was in quite a
different context, speaking of a statutory authority, given the right to exercise control and
exercising that control, generating in consequence
an expectation generally that the power would be
exercised and a recognition in that authority of the likelihood of that reliance.

Bryan(2) 69 24/3/94

So far as the high probability of loss is

concerned, there are also - - -

MASON CJ: Just stopping there. It is at that point that

Mr Justice Connolly moves forward from that and

applies that doctrine or concept of general

reliance to a situation such as this.

MR CHARLES:  Yes. I accept that, Your Honour. With

respect, while we accept the possibility of the
existence of that general reliance, we question the

propriety of its application here.

On the question of the high probability of

economic loss, that is put sweepingly. Plainly,

the question whether economic loss is going to

occur and the amount that will be involved depends

very much upon the actual damage which is happening

and we would submit that it is not capable of being

said with certainty that there was in this case a
high probability of economic loss.

Now, Your Honours, turning then to the question which appears as Bin my friend's

.

submissions, it is not, with respect, our

$Ubmission - it would be impertinent for us to make

the submission - that this Court should follow the

House of Lords in Murphy v Brentwood or in D & F

Estates. It was certainly not part of our argument

in opening that this Court should take that course.

It is now necessary to go back briefly to what

Mr Justice Connolly said in National Mutual v

Coffey. Your Honours, of course it is correct that

the line of authority in the High Court which

commences with Caltex and which was restated in

cases such as San Sebastian accept, for practical

purposes, that pure economic loss is really no

different from any other type of loss. Of course,

that is in fundamental conflict with the views of

probably most forcefully in cases like the Mineral	the House of Lords restated in a variety of cases,	Transporter, (1986) AC 1, and in Leigh and Sillavan
Ltd v Aliakmon Shipping, (1986) AC 785. By the
time those decisions had been handed down by
Their Lordships, the gulf between the path that was
being taken in this Court and that being taken by
the House of Lords was very wide indeed.

Notwithstanding that there is that fundamental

conflict, it is, in our submission, not entirely

helpful to say, as Mr Justice Connolly did in

National Mutual v Coffey, that therefore one should pay no attention, in effect, to House of Lords

decisions such as D & F Estates, because what we

submit is happening here is that this Court is

faced with a new question whether to extend the

Bryan(2) 70 24/3/94

liability of a builder to subsequent owners of

houses. It is a question which we submit is

capable of being dealt with by not less than five

quite different approaches.

The first of these would be by the approach

which is taken by, plainly, a majority of the Court
at this time, an examination of questions of

proximity; secondly, by the two-stage test which

until recently was followed in England in response

to Anns v Merton Council. Although that test has

ceased to be a part of the law of England, it would seem that it remains part of the law of New Zealand

because the fact that it remains very much so is

still asserted by Sir Robin Cooke in the last page

of his article in 107 LQR at page 70.

The third potential approach that could be

taken, Your Honours, would be by the introduction

or creation, because we would submit it would

amount to that, of something in the nature of a

transmissible warranty, the approach which is taken

in a number of the American States at this time,

which is an approach which is suggested by

Sir Robin Cooke in the article to which we have

just ..referred the.Court as being a potential way

out of the problem that is now being considered and
doing away with the labels "contract" and "tort"

for this purpose.

The fourth potential view, Your Honours, would

be by the view now adopted in the House of Lords in

cases such as Murphy v Brentwood and D & F Estates.

We would submit, with respect, that that is not

really properly characterized as

Mr Justice Connolly did as simply that pure

economic loss is not recoverable for damages for

negligence because there are at least a number of

well-established exceptions to it. We would accept

what Your Honour the Chief Justice put that in

creeping back into the decisions of courts in	recent times words like "proximity" have been
England. It may be that quite apart from the very
substantial closing of the gap which occurred in
Murphy v Brentwood that we will see proximity again
playing a much larger part in the decisions in
England.

The next approach would be that taken by

Your Honour Justice Brennan and to which we

referred at the outset of our argument yesterday

and possibly, Your Honours, finally, the approach

taken by Californian courts in cases such as Huang

v Garner referred to by my friend this morning and

which is based largely on the earlier decision in

relation to the will of Biakanja v Irving.

Bryan(2) 71 24/3/94

Now, Your Honours, what that all means is that

when my friend seeks to rely, as he is perfectly

entitled to, on Bowen v Paramount Builders, he

really faces the same sort of difficulty as arose

with an attempt to rely on Murphy v Brentwood in

National Mutual v Coffey because we have here a

variety, we would submit, of potential approaches

where the courts are striving to see an appropriate
and fair way of dealing with a particular problem

which have not faced the courts before.

The fact that Anns is, in our submission, not

the law in Australia and following a quite separate path is best demonstrated by an examination of what

Justice McHugh said in the paper His Honour gave

entitled "Neighbourhood Proximity and Reliance"

which is contained in our list of articles and, in

particular, His Honour's examination of Anns and

its relationship to Australia at pages 17 to 22.

MASON CJ:  Is this the paper he presented at one of these

seminars of Professor Finn's?

MR CHARLES:  Professor Finn's, Your Honour. I have reason

to recall it because I was the commentator on that

paper. Certainly not, in our submission, since

Sutherland Shire Council v Heyman could it have

been said that Anns represented the law in relation

to Australia. Now, that does not mean for a

moment, and it is not our submission, that this

Court will not derive assistance from decisions of

the courts in New Zealand or, for that matter, from the English courts up to the time of Anns. What we are submitting is that where courts have been faced with the same problem which is now before this

Court, that Your Honours may find assistance from

looking at particular aspects of the argument.

Briefly, Your Honours, in relation to the

United States cases, we would respectfully submit

that so far as Huang v Garner is concerned, relying	as it does on Biakanja v Irving, there is advantage
to be gained by looking at the facts in that case
which were found to support the existence of the
special relationship which the Californian courts
now seek in these circumstances. The facts are set
out, Your Honours, on pages 812 to 813 in
paragraph 19, beginning at the bottom of the
left-hand column of page 812. I do not propose to
take Your Honours to them in any detail. I simply
invite Your Honours to examine them to see the
circumstances which led to the finding of that
special relationship.

So far as East River Steamship is concerned,

in our submission, the Supreme Court did decline to

recognize a right to recover pure economic loss,

Bryan(2) 72 24/3/94

regarding it as traditionally the core concern of

contract law. That, Your Honours, is taken from

page 2203 of the report to which I gave the Court a

reference yesterday, and that was cited in Murphy v

Brentwood by Lord Keith at page 469 and Lord Bridge

at page 476.

The Supreme Court is certainly not alone in the United States courts in taking that particular

approach. Various US Courts of Appeal have

followed the same line. One example is Aloe Coal

Co v Clark Equipment, (1987) 816 F 2d 110, and which is cited in Murphy v Brentwood by Lord Keith

at page 469. A second court of appeal taking a

similar line is in State of Louisiana v M/V

"Testbank", 752 F 2d 1016, which was cited in

Canadian National Railway Company v Norsk Pacific

in the report cited to Your Honours this morning in

morning in the dissenting judgment of

Justice La Forest at page 317.

It is clear enough that a large number of

American cases do not permit economic loss to be

recovered in tort. Indeed, in the very case that

was relied on this morning, .Lempke v Dagenais -

whic'h is case No 32 on my friend's list of ·cases -

that court observed at page 296 that:

the majority of courts do not allow economic

loss recovery in tort -

A different question, Your Honours, is whether it

would be allowed in contract and here on the basis,
it would seem, of the implied transmissible
warranty. Whether any such implied transmissible
warranty should be seen to exist in the

circumstances of this case, Your Honours, creating,

as we would submit, a new type of right and one not

pleaded here, would be very much a question which

would draw in as a relevant matter the extent to

which the relevant legislatures had taken steps by

legislation such as is now the law in Tasmania to

make provision assisting the owners of defective

houses.

We would submit that all that one can say in

relation to the judicial thinking in the United
States is that the Supreme Court and various

appellate courts restrict recovery for economic

loss in tort in relation to chattels; that various

States still do follow the Seely line - if I can

call it that - and deny recovery and that in

California, on which special emphasis has been

placed in my friend's argument, there is required a

special relationship.

Bryan(2) 73 24/3/94

My friend has, in his submissions, put it,

Your Honours, in page 3, in relation to Paramount

Builders, that that decision has not been doubted subsequently. With all respect to my friend's

admirable argument, it would be difficult to say

that Bowen v Paramount Builders has not been

doubted. It was very considerably doubted, we

would say with great respect, in the two recent

House of Lords decision and, no doubt, that is

partly why Sir Robin came back with the vigour he

did in his article, "The Impossible Distinction" in

the Law Quarterly Review. But simply to draw

Your Honours' attention to doubts expressed

in ..... we would say in Murphy v Brentwood by
Lord Keith at page 469, by Lord Bridge at page 478
and by Lord Jauncey at page 496 and in D & F
Estates by Lord Bridge at pages 205 and 207 and by
Lord Oliver at pages 214 to 215.

So far as Canada is concerned, Your Honours have before you the Canadian National Railway Co v

Norsk Pacific Steamship case. There is a detailed

examination of a variety of jurisdictions including

Australia which begins, in particular, at page 362

and we would emphasize the passage at page 368.	We
would submit that the approach finally arrived at

by that court is one which is very close to, if not

identical with, the Australian approach, if I may
refer to that as being that of the majority of the

court, but the discussion takes place in the report

at pages 366 to 372.

Now, Your Honours, we certainly, I have said,

do not submit that this Court should follow Murphy

v Brentwood. We simply submit that to the extent

that the Law Lords have dealt with the same

question, which is now confronting the Court, and

putting to one side the very obvious disinclination

of the House of Lords to permit recovery for pure

economic loss, that there are a number of other

matters raised in the speeches which we have

extracted in our outline and which we have

attempted to draw attention to in opening which we
submit the Court may find persuasive in dealing
with this question.

In particular, Your Honours, there are three matters. The first: whether one should impose

tortious or implied warranty obligations on a
builder who may have made a contract which is quite

inconsistent with the obligations which it is now

thought to impose on him; second, whether any

relevant statutory protection is now given to

householders in these circumstances; and thirdly,

whether it is necessary or desirable that there be

some new remedy given in relation to private

Bryan(2) 74 24/3/94

dwellings conflicting with the rules relating to

chattels.

BRENNAN J:  Why do you say private dwellings as distinct

from commercial buildings?

MR CHARLES:  It is a distinction which was made by

Sir Robin Cooke himself, Your Honour, in the

article that he - I am afraid I cannot place the

reference immediately but it was one that was made

by Sir Robin himself as being as yet unanswered.

It may be simply that those for which it is

expected to use for some other purpose than

dwelling involve much larger sums of money. It may

be something which involves some protection for the

builder.

The same thought is plainly not present in the

approach of the Californian courts because, in the

case of Huang v Garner, which was referred to this

morning, in that very case the court said that

there could be the possibility of recovery,

notwithstanding that the premises were being let to

other people. I am grateful to my friends who have

drawn my attention to a·passage at page 67 of the

article.

BRENNAN J:  It is difficult to see why there should be any

distinction in principle though, is there?

MR CHARLES:  What His Honour said at page 67 point 3 is:

Opinion is probably much more divided in

relation to commercial buildings.

BRENNAN J: What does one say about inner-city condominiums?

The problem just becomes too complex.

MR CHARLES: Yes, indeed, Your Honours. What we say,

Your Honours, is no more than that at least in

those three areas Their Lordships have made

observations which bear on a number of the

questions involved in matters which might be

thought to involve the Australian approach to

proximity and, given the eminence of the source,

they may be of persuasive value, those observations

being wholly distinct from the approach of the

House of Lords to questions of pure economic loss,

in our submission.

Your Honours, those are our submissions.

MASON CJ: Thank you, Mr Charles.

The Court is extremely indebted to counsel for the assistance that they have provided. The

argument presented reflects vast research and that

Bryan(2) 75 ... 24/3/94

research has been incorporated in an argument that

has lasted less than a day. The argument is in a

form readily capable of being assimilated by the

Court. The Court will consider its decision in

this matter.

AT 12.50 PM THE MATTER WAS ADJOURNED SINE DIE

Bryan(2) 76 24/3/94