Ku-ring-gai Council v Chan

[2017] NSWCA 226

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Ku-ring-gai Council v Chan [2017] NSWCA 226
Hearing dates:	25 November 2016 Supplementary written submissions 28, 29 November 2016
Decision date:	07 September 2017
Before:	McColl JA at [1]; Meagher JA at [2]; Sackville AJA at [115]
Decision:	1. Appeal allowed. 2. In relation to order 1 made on 3 June 2016: (a) Set aside the judgment for the first and second respondents against the appellant in the amount of $510,096.76. (b) Note that the amount of the judgment against the third respondent and in favour of the first and second respondents, and the only amount that the third respondent is liable to pay, is $592,559.57. 3. Set aside orders 4 and 5 made on 3 June 2016. 4. Order that the first and second respondents’ claim against the appellant by their Amended List Statement be dismissed. 5. Order that the third respondent’s cross-claim against the appellant be dismissed. 6. Order that the first and second respondents pay the appellant’s costs of the appeal. 7. Direct that the appellant and first and second respondents confer with a view to agreeing on the costs orders that should be made between them in relation to the proceedings at first instance in order to give effect to these reasons. Having done so, they are to file agreed Short Minutes within seven (7) days of the making of these orders and, in the absence of agreement, to file with Meagher JA’s Associate within fourteen days (14) of the making of these orders written submissions, not exceeding three pages, with respect to the costs orders they seek. Any remaining costs question is to be decided on the papers.
Catchwords:	TORTS – negligence – duty of care – pure economic loss – reliance – vulnerability –where council as principal certifying authority retained by owner-builder issued occupation certificate under Environmental Planning and Assessment Act 1979 (NSW), s 109D(1)(c) in relation to structurally and non-structurally defective building works on residential property – where subsequent purchaser of property enjoyed benefit of statutory warranties against owner-builder under Home Building Act 1989 (NSW), s 18B – whether council owed subsequent purchaser duty to take reasonable care in issuing occupation certificate – where owner-builder agreed with council that he was responsible for compliance with laws and approvals – whether council liable to indemnify owner-builder due to careless issue of occupation certificate
Legislation Cited:	Building Professionals Act 2005 (NSW) ss 63, 65 Building Professionals Regulation 2007 (NSW), Pt 4, divs 2, 3 Conveyancing (Sale of Land) Regulation 2005 Civil Liability Act 2002 (NSW), Pt 4, ss 5B, 5D, 5R, 34, 35, 43, 43A Environmental Planning and Assessment Act 1979 (NSW), Pts 4, 4A, ss 4, 76A, 81A, 109C, 109D, 109E, 109H, 109L, 109M, 121B Environmental Planning and Assessment Regulation 2000 (NSW), regs 145, 162A, 162B Home Building Act 1989 (NSW), Pts 2C, 6, ss 3, 18B, 18C, 18D, 18E, 18G, 30, 76A, 92, 95, 95, 101, 102, 103B Home Building Amendment (Minimum Insurance Cover) Regulation 2007 (NSW), cl 60
Cases Cited:	Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36 Bryan v Maloney (1995) 182 CLR 609 Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258 Dansar Pty Ltd v Byron Shire Council (2014) 89 NSWLR 1; [2014] NSWCA 364 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; [1997] HCA 8 Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1999] 2 Qd R 236 Hill v Van Erp (1997) 188 CLR 159; [1997] HCA 9 MM Constructions (Aust) Pty Ltd v Port Stephens Council [2012] NSWCA 417 Mutual Life & Citizens’ Assurance Co Limited v Evatt (1968) 122 CLR 556 Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 Pyrenees Shire Council v Day (1988) 192 CLR 330; [1988] HCA 3 Rin Rim Pty Ltd v Deutsche Bank AG [2017] NSWCA 169 Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225 Tame v New South Wales (2002) 211 CLR 317; [2002] HCA 35 Tepko Pty Ltd v Water Board (2001) 206 CLR 1; 2001 [HCA] 19 Wallace v Kam (2013) 250 CLR 375; [2013] HCA 19 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16
Texts Cited:	Building Code of Australia, Pts 3.2, 3.5, 3.8, cl A3.2
Category:	Principal judgment
Parties:	Ku-ring-gai Council (Appellant) Rebecca Chan (First Respondent) Warren Cox (Second Respondent Robert Acres (Third Respondent) Mitchell Howes Civil & Structural Engineers Pty Ltd (Fourth Respondent)
Representation:	Counsel: P J Bambagiotti with V Misra (Appellant) M Dempsey SC with M Klooster (First and Second Respondents) No appearance (Third Respondent) Mitchell Howes Civil & Structural Engineers Pty Ltd (Fourth Respondent) (Submitting appearance)   Solicitors: Mills Oakley (Appellant) Snelgroves Lawyers & Notary Public (First and Second Respondents) Gilchrist Connell Lawyers (Fourth Respondent)
File Number(s):	2015/377941
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2015] NSWSC 1885 Date of Decision: 11 December 2015 Before: McDougall J File Number(s): 2015/48496

Headnote

[This headnote is not to be read as part of the decision]

In order to conduct residential building work, an owner-builder appointed a local council as the principal certifying authority under the Environmental Planning and Assessment Act 1979 (NSW). Before issuing an occupation certificate, the council was required to be satisfied (amongst other matters) that the completed alteration works were suitable for occupation and use and complied with the approved plans and specifications. Despite inspecting the work on several occasions, the council failed to identify defects, some of which were structural, and non-compliance with the approved plans. It thereafter issued to the owner-builder an occupation certificate, which had the effect of authorising the occupation and use of the building. The subsequent owners of the property, having suffered economic loss consisting of rectification and relocation costs, brought proceedings against the owner-builder, the council and an engineer. The owner-builder cross-claimed against the other two defendants for indemnification and apportionment.

The primary judge (McDougall J) held the owner-builder liable to the purchasers for breach of the warranties implied by the Home Building Act 1989 (NSW) in relation to the defects. Holding that the council owed the purchasers a duty to take care in issuing the occupation certificate, his Honour also concluded that, had the council undertaken the inspections in a competent and professional manner, it would have detected non-compliance and required rectification of the defects before the certificate was issued. His Honour dismissed the claim against the engineer and found the council liable in contract and tort to indemnify the owner-builder. The council appeals against those decisions.

Held (Meagher JA, McColl JA and Sackville AJA agreeing), allowing the appeal:

i. As a novel claim to recover damages for pure economic loss, the purchasers’ case depended on the presence or absence of features which in earlier cases have assisted in determining whether a duty should be imposed. Those features include, in particular, vulnerability in the sense of an inability to protect oneself from the consequences of a defendant’s want of care. It is not sufficient if all that is shown is that the negligence was a cause of the loss and the loss was reasonably foreseeable: [68]–[69], [116].

ii. Not being a claim for negligent misrepresentation, the purchasers’ case only included reliance in the general sense of an expectation that the council would undertake its tasks properly. Such reliance was insufficient to demonstrate their vulnerability: [92]–[93], [117]–[118].

iii. Given that the purchasers had the benefit of the statutory warranties and remained able to protect themselves by negotiating the terms of purchase, they were not otherwise vulnerable. Accordingly, the council was not subject to a duty: [97]–[98], [119].

Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16; Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36; Dansar Pty Ltd v Byron Shire Council (2014) 89 NSWLR 1; [2014] NSWCA 364 applied. Bryan v Maloney (1995) 182 CLR 609 considered.

iv. As between the council and the owner-builder, it was agreed that the latter was responsible for complying with the relevant statutory provisions and approvals. Absent the council undertaking to supervise compliance on the owner-builder’s behalf, it was not liable to indemnify him in relation to the non-compliance and defects: [110].

v. In any event, the owner-builder did not suffer loss as a result of any want of care in the issue of the occupation certificate. If the council had not issued the certificate, the latent structural defects would have existed and remained unrectified: [109].

Judgment

1. McCOLL JA: I agree with Meagher JA’s reasons and the orders his Honour proposes.

2. MEAGHER JA: The main issue in this appeal is whether the appellant Council, as principal certifying authority, owed the purchaser of residential premises a duty to take reasonable care in the issue of an occupation certificate to avoid their suffering economic loss as a result of the previous owner-builder’s defective building work. The primary judge (McDougall J) held that the Council did and that, had it exercised reasonable care when conducting critical stage inspections before the issue of the occupation certificate, the Council would have detected non-compliance with approved plans and specifications and required the owner-builder to rectify the structural defects which affected the premises. Accordingly, his Honour held that the first and second respondents, Ms Chan and Mr Cox (together, the purchasers), suffered compensable economic loss, measured as the cost of rectifying those defects ($467,448) and the costs of relocation and alternative accommodation incurred whilst those works were being undertaken ($42,648): Chan v Acres [2015] NSWSC 1885; Chan v Acres(No 2) [2016] NSWSC 557.

3. Before selling the property to the purchasers, the third respondent (Mr Acres) undertook building work as owner-builder and retained the fourth respondent (MHE) to prepare structural drawings and to inspect the work from time to time at his request. The purchasers also made claims against Mr Acres and MHE. The primary judge held the former liable for breach of the statutory warranties to which the purchasers were entitled under Home Building Act 1989 (NSW) (HB Act), ss 18C, 18D. That claim was for the cost of rectifying the structural defects ($467,448), and the cost of rectifying the remaining latent defects which also involved breaches of the statutory warranties ($125,110). The claim against the engineer was rejected. His Honour held that there was no duty of care owed by the engineer to the purchasers and alternatively that it was not established that a breach of duty had caused the purchasers’ loss. The purchasers had contended that, but for MHE’s negligence, the structural defects would not have existed. That allegation was not established. None of the findings involving MHE is challenged on appeal.

4. Mr Acres cross-claimed against MHE and the Council. The primary judge upheld his claim against the Council on the ground that performance of its certifying task with reasonable care would have resulted in any non-compliant and defective work being detected and remedied by the time the works were completed. On that basis, Mr Acres was held to be entitled to an indemnity from the Council in respect of the cost of rectifying the structural defects ($467,448). Mr Acres’ cross-claim against MHE was dismissed because of his Honour’s finding that there was no causal link between any breach of duty on its part and the existence of those defects.

Issues in the appeal

5. The Council appeals from the judgment in favour of the purchasers for the costs of rectifying the structural defects ($467,448) and of relocation ($42,648) and the judgment in favour of Mr Acres for an indemnity against his liability to the purchasers for the structural defects ($467,448). That indemnity did not extend to the cost of rectifying the non-structural latent defects ($125,110). Although MHE was named as a party to the appeal, no relief was sought against it. There was no appearance in the appeal by or on behalf of Mr Acres, although he had represented himself at the hearing and was served with the notice of appeal. Because of their interest in preserving Mr Acres’ entitlement to the indemnity, the purchasers’ written submissions also addressed and supported the dismissal of that part of the Council’s appeal.

6. There are four issues raised by the Council’s appeal. They are:

1. Whether the Council owed a duty of care to the purchasers as found (grounds 1 to 5);

2. Whether the Council’s breach of that duty caused the purchasers’ loss measured as the cost of rectifying the structural defects (grounds 7 and 8);

3. Whether the Council was liable by way of damages for breach of contract and a duty of care to indemnify Mr Acres against his liability to the purchasers for that cost (grounds 9 and 13);

4. Whether, if the Council is liable to the purchasers, that liability should be apportioned as between it and Mr Acres under Civil Liability Act 2002 (NSW), Pt 4 (grounds 6 and 10 to 12).

Background facts

7. Mr Acres and his former wife owned a dwelling house in Wahroonga. He carried out significant renovations and extensions to that property as owner-builder in 2008 and 2009. (Mr Acres’ former wife played no part in the proceedings and no point was taken about that omission.) The Council, as the relevant consent authority, issued a development consent to Mr Acres on 22 April 2008 and a construction certificate on 6 May 2008. MHE was retained by Mr Acres to prepare structural drawings and, from time to time, to undertake inspections of the works as they proceeded. Mr Acres appointed the Council as principal certifying authority to provide the services of a principal certifying authority in accordance with Environmental Planning and Assessment Act 1979 (NSW) (EPA Act), s 109E. The matters about which a principal certifying authority must be satisfied are set out in s 109E(3), which is extracted below at [45]. The agreement evidencing that appointment was dated 5 May 2008 (the PCA Agreement).

The PCA Agreement

8. This agreement described itself as a service agreement under which the Council was appointed principal certifying authority as required by EPA Act, s 81A “to carry out nominated inspections of the building works and to issue required Final Occupation Certificates”. Section 81A(2) provides that building work which is the subject of development consent must not be commenced before several conditions have been satisfied. Those conditions include that the person having the benefit of the consent has appointed a principal certifying authority. The provisions of the EPA Act in relation to that role and development assessment more generally are summarised below at [41]–[53]. Clauses 10 to 13 of the PCA Agreement were set out by the primary judge at Judgment [345] and are as follows:

10. Building Inspections

Council building inspections are undertaken at critical phases of the building process.

Council, acting as the PCA, may at any stage request the owner or the owner’s builder to provide specialist reports, plans, specifications (e.g. Fire Safety Certificates) and certification of building materials, process or works. Work must not proceed beyond each stage until a satisfactory inspection result is obtained.

Council will provide you with a list of Critical Stage Inspections to be conducted for the development. Please refer to your responsibility under this agreement to ensure that Council is given not less than 48 hours notice (excluding weekends and public holidays) of when works are ready to be inspected.

Ku-ring-gai Council will carry out PCA and inspection services in a professional manner and in accordance with the requirements of the Environmental Planning and Assessment Act 1979 and Council’s Code of Conduct.

11. Other Services

These services will attract additional fees and charges

Ku-ring-gai Council’s building surveyors can provide a range of additional PCA services, including issuing of Compliance Certificates, details of compliance with Council’s development consent and provision of technical building and fire safety advice. The provisions of these services are not covered by this agreement.

12. Compliance with relevant legislation, consent and approvals

Work not in accordance with the approval and Building Code of Australia may result in the refusal to issue an Occupation Certificate. Council may also serve notices and orders to comply with the approval and/or may institute legal proceedings for any breach.

It is the agreed responsibility of the owner and their builder or sub-contractors, where the owner is the builder that they must comply with all relevant legislation, consents and approvals relating to the subject development.

These include but are not limited to the following Acts and Regulations thereunder:

*  The Environmental Planning and Assessment Act 1979

*  The Contaminated Land Management Act 1979

*  The Protection of the Environment Operations Act 1997

*  The Local Government Act 1993

*  The Roads Act1993

*  The Traffic Act 1909

It is agreed that the owner has a duty of disclosure with respect to any known breach of any relevant legislation or matter that may require rectification or remediation. An example being the discovery of land contamination.

13. Occupation Certificate

This agreement includes the assessment and determination of the final Occupation Certificate, however, where the owner makes an seeks an Interim Occupation Certificate additional fees and charges apply in accordance with Council’s adopted fees and charges

The owner agrees that a final Occupation Certificate must be obtained from Ku-ring-gai Council prior to the occupation or use of a new building (or part of a building) or prior to the change of an existing building use/classification. An application may be made to the Council for an interim Occupation Certificate, which will be considered in accordance with the provisions of the Environmental Planning and Assessment act [sic] 1979 and conditions of development consent. An application for an interim or final Occupation Certificate must be accompanied by final or interim fire safety certificates as required by the Environmental Planning and Assessment Act (Form 15). The production of Fire Safety Certificates does not form part of this agreement and is only required for Class 2 to 9 buildings inclusive.

The defective works

9. The works consisted of a two-level extension at the back of an existing house. That extension was constructed on a concrete slab. The northern, southern and western walls at the lower level were constructed in blockwork which was to be tied or “cogged in” to the concrete slab and to a horizontal bondbeam which supported the upper level floor. In each case, that tie was to be achieved using steel reinforcing bars, which were to be bent for that purpose. The block walls were also to be strengthened using vertical bars. So reinforced and filled with concrete, the relevant blockwork would then include what were referred to as vertical and horizontal bondbeams.

10. The structural defects included that the lower level block walls lacked sufficient vertical reinforcing bars, were not wholly filled with concrete and were not properly tied in to the concrete slab and horizontal bondbeams. This meant that the block walls were not structurally adequate to support the weight of the overlying structure. The roof beams and framing that were then erected as part of the upper level also were not adequately attached to the blockwork walls of that level.

9. The structural defects for which the Council was ultimately held liable were items 1 to 6 below, which to some extent overlap. The primary judge also held that, in order to rectify those defects, it was necessary for the extension work first to be structurally braced.

Item	Description of defect
1	Defective construction of lower ground floor slab by failure to install N16 starter bars for the bond beam construction and failure to construct the edge beam number 3.
2	Defective construction of lower ground block walls and vertical bond beams.
3	Defective construction of ground floor structural framing and horizontal bond beam
4	Defective construction of the ground floor external walls
5	Defective construction of ground floor structural steel framing
6	Defective construction of roof framing

12. There were several other respects in which the building work was defective and did not comply with the engineer’s structural drawings or the approved plans and specification. They included non-compliant internal stairs (item 7); problems with wet area waterproofing in the bathrooms, toilets and laundry (items 8, 9, 10, 18 and 19); incorrect levelling of external paving at the front entry (item 12); inadequate overhead electrical service mains attachment (item 13); defective roof tiling around skylights (item 20); and a defective northern boundary retaining wall (constructed using permanent polymer formwork filled with ready-mixed concrete) (item 21). The remaining item numbers (11, 14, 15, 16 and 17) either were not used, formed part of another item or described a defect which was not constructed by Mr Acres as part of the approved building work.

13. The primary judge held that the Council was liable to the purchasers for the cost of rectifying structural items 1 to 6 ($349,279) and the structural bracing costs ($118,169), a total of $467,448. The Council was also held liable to pay the relocation and alternative accommodation costs ($42,648) made necessary by the task of rectification: Judgment (2) [14]–[15]. In relation to the purchasers’ claim for breach of the statutory warranties, Mr Acres was held liable for the cost of rectifying items 9, 12, 13, 18, 19 and 21 ($125,110) as well as the structural items ($467,448). He was not held liable for the relocation and accommodation costs. Mr Acres was then held entitled to an indemnity from the Council, but only for his liability to the purchasers of $467,448.

The critical stage inspections by the Council

14. The works proceeded between May 2008 and July 2009, when the occupation certificate was issued. It was common ground that the Council had not provided any additional PCA services to Mr Acres of the kind contemplated by cl 11 of the PCA Agreement. In accordance with cl 10, the Council at the outset provided a list of the critical stage inspections which it proposed to undertake. That letter advised that those inspections were “to be carried out by Council prior to commencing the next phase of works”. At the completion of each inspection, the Council building surveyor who undertook the inspection produced a document which described itself as a “Compliance Certificate” issued under EPA Act, s 109C(1)(a). However, it was not part of the purchasers’ case that those documents were, or were intended to be, issued under that provision or that the agreement between Mr Acres and the Council extended to the provision of such a service. Clause 10 stated that the provision of such services was “not covered by this Agreement”.

15. The Council’s building surveyor (Mr Sasidharan) inspected the building works on several occasions. The subject matter of each inspection was identified on the document issued to Mr Acres, or his wife, at the end of the inspection. The subjects of those inspections included:

Date	Inspection
20 June 2008	Slab to rear lower ground
3 July 2008	Storm water drainage
8 July 2008	Block walls
15 December 2008	Frame
23 June 2009	All building works

16. Mr Acres’ evidence was that in “each attendance” the certifier would speak “directly to the contractors as to how the works would be brought up to the required standards” and that his “instructions” were then recorded in the documents. He also said that “[a]t all stages, [he] complied with the certifier’s directions, and arranged for the performance of the additional work that they recommended”. However, as the primary judge found when considering the case against MHE, Mr Acres’ contractors did not comply with the engineer’s drawings or Mr Acres’ instructions: Judgment [319], [320].

17. The particular stage inspections which the purchasers allege were not carried out by the Council in a “proper and workmanlike manner” are those of 8 July 2008 and 15 December 2008. The document dated 8 July 2008 in relation to the “block walls” included the following handwritten notation:

Block wall reinforcement satisfactory.

N16 bars to be placed at each corner and ends to full height of the block wall prior to core filling.

Inform the owner to provide copy of Engineer Drawings.

18. It is said that following that inspection the Council surveyor did not return to check that the “N16” bars (steel reinforcing bars that were to be tied in to the horizontal bond beam) had been installed to the full height of the block walls and that the core of the block walls had been filled as instructed.

19. The document dated 15 December 2008 in relation to “Frame” included the following notation: “Roof frame, first floor joists, steel beams + columns. Satisfactory.” Mr Sasidharan’s affidavit evidence was that the purpose of this inspection was to confirm that the upper level roof frame had been erected in accordance with the engineer’s plans. He said that he inspected the structural elements that he was able to see from below, and otherwise relied on an earlier site inspection report of MHE dated 2 December 2008 as establishing that the remaining parts were also as required by those plans.

20. Mr Acres’ affidavit evidence directed to the issue of the final occupation certificate was that he believed, having obtained that “certificate, and in view of the inspections undertaken by Mr Sasidharan”, that “the work which had been performed by the contractors was properly compliant with the DA documents and any other rules or regulations.” He added that the “fact that [Mr Sasidharan] did not raise with [him] any such problems and in fact granted the final occupation certificate led [him] to believe that the works were properly performed”.

The issue of the final occupation certificate

21. On 10 July 2009, the Council issued a final occupation certificate pursuant to EPA Act, s 109H. It certified that:

• Council has been appointed as the Principal Certifying Authority under s 109E

•   A Development Consent is in force with respect to the building

•   A Construction Certificate has been issued with respect to the plans and specifications for the building

•   The building is suitable for occupation or use in accordance with its classification under the Building Code of Australia.

22. That certificate described the building details as “Additions and Alterations plus pool”, the use of the building as “residential” and the relevant provisions of the Building Code of Australia (BCA) as class “1a & 10b”. Buildings and structures are classified under the BCA by the purpose for which they are designed, constructed or adapted to be used. Class 1a is a single dwelling being either a detached house or one of a group of two or more attached dwellings. Class 10b is a non-habitable building or structure and includes a swimming pool: BCA, cl A3.2. The requirements in the BCA for class 1 and 10 buildings are referred to as the Housing Provisions. Those provisions contain descriptions of the construction methods which satisfy the requirements of the BCA, including with respect to Footings and Slabs (Pt 3.2), Framing (Pt 3.5) and Health and Amenity (Pt 3.8). The latter includes wet areas and external waterproofing.

The purchasers’ pre-contractual inspections

23. Ms Chan and Mr Cox first inspected the property on 27 March 2010. On 28 March, they made an offer to the agent which was subject to a satisfactory building report. Mr Cox was advised of a pre-purchase report conducted by Mr Drinkwater of Inspect It. In the afternoon of 29 March 2010, Mr Cox received a copy of that report, which included the following under the heading “Property description”:

The building appears to have been renovated and or extended. The purchaser should check with the local council to ensure that the builder was licensed and has obtained all statutory insurances and that the council has approved and inspected changes to the building.

The following information should be requested from the building contractor:

Constructional Final Certificate/Occupation Certificate.

Engineering certification for detention tanks, structural steel work and non-standard timber beams.

Council stamped and approved plans, development approval and specifications.

Home Building Warranty Insurance with specific reference to building contractor and this project.

24. The report identified evidence of water penetration through the ceiling to the lower bedroom in the south west corner at the rear of the house which required repair. This became the subject of special condition 18 in the contract for sale. The following observation was made as to the overall condition of the building:

Therefore the overall condition of this Building in the context of its age, type and general expectations of similar properties is average. There may be areas/members requiring minor repair or maintenance. There were no major matters that require attention or rectification.

25. The report contained a general warning as to the inspection being a “visual inspection only”. It was accepted in the proceeding below that the structural defects identified as items 1 to 6 could not have been discovered on a visual inspection of the kind conducted by Mr Drinkwater.

26. Mr Cox spoke to Mr Drinkwater about his report later on 29 March. In the course of that discussion, Mr Drinkwater advised that there were “no major issues other than the weep holes/vents and the bedroom ceiling”. The reference to the “weep holes/vents” was to an absence of vents and/or weep holes in the base of the external brick walls. The report recommended that they be installed as their absence could lead to ventilation and dampness problems. Following that conversation, the purchasers made a revised offer. That offer was accepted, and contracts for sale were exchanged on the following day, 30 March 2010.

The contract for sale

27. The contract for sale was from Mr and Mrs Acres to Ms Chan and Mr Cox. It consisted of the standard form agreement (2005 edition) and 18 special conditions. Special condition 1 addressed the condition of the premises. Sub-clauses (1)(b) and (f) contained an acknowledgment by the purchasers that they were purchasing the property subject to “all defects latent or patent”, and as a result of their “own inquiries and inspections and not as a result of any representations made by or on behalf” of the vendors. Special condition 16 provided:

Annexed hereto are copies of:

i.   Final Occupation Certificate of Kuringgai Council dated 10 July 2009 (“final occupation certificate”); and

ii.   Certificate of Insurance of Calliden’s Insurance Limited dated 11 February 2010 (“insurance certificate”); and

iii.   Building Certificate of Kuringgai Council dated 1 February 2010 (“building certificate”)

Pursuant to the Conveyancing (Sale of Land) Regulation 2005 the Vendor discloses and the Purchaser acknowledges being aware of the contents of the final occupation certificate, insurance certificate, building certificate and this special condition and will not raise any objection, requisition, claim for compensation or be entitled to rescind or terminate this contract in respect of the accuracy of, or any matter or thing disclosed in or arising out of, the final occupation certificate, insurance certificate, building certificate or this special condition.

28. By that special condition, the purchasers agreed that they would make no claim for compensation against the vendors in respect of the accuracy of the final occupation certificate. It was not contended that this provision prevented them from pursuing their claim for breach of the statutory warranties. Nor could it have been in the light of HB Act, s 18G.

29. Special condition 17 included a “conspicuous note” in purported compliance with HB Act, s 95(2A). That note was to the effect that an owner-builder permit had been issued to one of the vendors in relation to the land and that the work done under the permit was required to be insured under the HB Act.

30. Finally, special condition 18, a handwritten provision, required the vendors, prior to completion, to do such works as were necessary to rectify the water penetration problem in the ceiling to the lower bedroom in the south-west corner. That defect had been identified in the inspection report and the purchasers had bargained to avoid their incurring the cost of rectifying it.

The evidence of the purchasers

31. Ms Chan, a lawyer working in an investment management firm, did not give evidence. In his evidence-in-chief Mr Cox did not make any reference to the significance of the occupation certificate attached to the contract for sale or suggest that there had been any reliance on its contents in relation to the decision to purchase, or any decision as to the terms on which they were prepared to do so.

32. The purchasers did not make any inquiries of the Council following their receipt of the building inspection report. They were aware that there was an occupation certificate and insurance certificate attached to the contract. In relation to those matters, Mr Cox gave the following evidence in cross-examination:

Q.   Yes, did the two of you talk about or express any relief or take any comfort from the fact that you had seen the statutory insurances and that you had seen the Council approvals?

A.   Yes, we did. For both the occupation certificate and the building certificate.

33. The purchasers did not obtain copies of the Council’s stamped and approved plans from Mr Acres. Nor did they obtain a copy of the development consent or any drawings or specifications relating to the extension works. When the contract for sale was signed, they knew that Mr Acres had undertaken extension works as owner-builder. They appreciated that they were purchasing the property subject to all “defects latent or patent”, and in its present state and condition of repair. They also appreciated that there were limitations on the scope of the inspection report and that it remained a possibility there were defects in areas which Mr Drinkwater had not been able to inspect.

34. Finally, in relation to the occupation certificate, Mr Cox understood that there was some process of inspection undertaken before the occupation certificate was issued but did not have information as to who at the Council had inspected or certified the works at different points in time.

Statutory context

35. It is convenient at this point to describe the two principal and related legislative schemes governing the relationship between the Council as principal certifying authority, the owner-builder and subsequent purchasers of the property.

The Home Building Act

36. The work undertaken by Mr Acres was “residential building work” within the meaning of HB Act, s 3(1). Mr Acres was issued with an owner-builder permit to undertake that work under HB Act, s 30. Section 18B implies certain warranties by the holder of a contractor licence into every contract to do residential building work. Those warranties relevantly include:

(a)   a warranty that the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract.

…

(c)   a warranty that the work will be done in accordance with, and will comply with, this or any other law.

…

(e)   a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling.

37. The purchasers, as the immediate successor-in-title to Mr Acres as owner-builder, were entitled to the benefit of those “statutory warranties” as if Mr Acres had undertaken the relevant works under a contract with the purchasers to do that work: HB Act, ss 18C, 18D. They were entitled to bring proceedings for breach of those warranties within seven years after the completion of the works: s 18E(1). Section 76A of the EPA Act prohibited the carrying out of the development other than “in accordance with the [development] consent”, and a prescribed condition of that consent (condition 15) was that the work be carried out in accordance with the BCA. Accordingly, the effect of the warranty in para (c) included that the building work would comply with the BCA.

38. Under HB Act, Pt 6, “owner-builder work” includes alterations and additions to a dwelling. The work undertaken by Mr Acres answered that description. Section 92(1) prohibits a person from doing such work under a contract unless a contract of insurance that complies with that Part is in force. That insurance must insure a purchaser of the property on which the building work is done, together with that purchaser’s successors-in-title, against the risk of being unable to recover compensation from the owner-builder or contractor for breach of statutory warranty due to that person’s insolvency, death or disappearance: s 101. At the time the works were undertaken, that insurance had to provide cover of not less than $300,000: s 102(3); Home Building Amendment (Minimum Insurance Cover) Regulation 2007 (NSW), cl 60(1). That cover was to be for a period of not less than six years after completion of the work or the end of the contract relating to the work, whichever was later: s 103B.

39. As owner-builder and proposing vendor, Mr Acres also was required to attach to any contract for sale a certificate evidencing the existence of that insurance: s 95(2). Special condition 17 of the contract for sale was a “conspicuous note” in the terms required to be included by s 95(2A) (see above [29]).

40. Part 4 of the Civil Liability Act 2002 (NSW) provides for the apportionment of liability in relation to “apportionable claims”. However, that Part does not apply to a claim for damages arising from a breach of statutory warranty under HB Act, Pt 2C brought by a person having the benefit of the statutory warranty: Civil Liability Act, s 34(3A). That provision commenced on 25 October 2011 but applies to civil liability arising before that date unless that liability was at that time the subject of proceedings. Mr Acres’ liability was not. Accordingly, s 34(3A) applied to the claim made by the purchasers against him.

The Environmental Planning and Assessment Act

41. Part 4 of the EPA Act is concerned with the assessment of development, which includes rebuilding and making alterations to an existing building (ss 4(1), 4(2)(c)(i)). In particular, works of the kind undertaken by Mr Acres require development consent in accordance with s 76A. Except in the case of “complying development”, that consent is sought from a “consent authority”, almost always the relevant council. Section 81A(2) prohibits the commencement of the erection of a building in accordance with a development consent until a “construction certificate” has been issued for the building work by the consent authority or an accredited certifier; the person having the benefit of the development consent has appointed a “principal certifying authority” for the building work; and, relevantly in this case, that person has notified that authority that the person will carry out the building work as an owner-builder. The construction certificate may not be issued unless the certifying authority is satisfied that the proposed building works “will comply” with the relevant requirements of the BCA: EPA Act, ss 81A(5), 109C(1)(b); Environmental Planning and Assessment Regulation 2000 (NSW) (EPA Reg), 145. Finally, under s 81A(1), a development consent that enables the erection of a building is sufficient, “subject to section 109M”, to authorise the use of that building when erected if that purpose is specified in the development application.

41. Part 4A deals with the certification of development by providing for the issue of four types of certificate: “compliance certificates”, “construction certificates”, “occupation certificates” and “subdivision certificates”. Certificates in the first three categories may be issued by a consent authority, the council or an accredited certifier: s 109D(1). A compliance certificate includes a certificate to the effect that “specified building work or subdivision work has been completed as specified in the certificate and complies with specified plans and specifications” or that “a condition with respect to specified building work or subdivision work” has been duly complied with: s 109C(1)(a)(i), (ii).

42. In contrast, an occupation certificate “authorises” either “the occupation and use of a new building” or “a change of building use for an existing building”: s 109C(1)(c). The reference to “a new building” includes “an extension to” an existing building: s 109C(4). Under s 109M(1), a person must not commence occupation of or use any part of a new building (including an extension to an existing building: s 109H(7)) unless an occupation certificate has been issued in relation to that building or part. That prohibition does not apply to occupation or use “at any time after the expiration of 12 months after the date on which the building was first occupied or used”: s 109M(2)(b).

43. Section 109E(1)(b) requires that the person having the benefit of the development consent may only appoint the “consent authority, the council or an accredited certifier” as principal certifying authority. That appointment may not be made by any contractor or other person who will carry out the building work “unless the contractor or other person is the owner of the land on which the work is to be carried out”: s 109E(1A). If the council is appointed as principal certifying authority, it must accept that appointment: s 109E(1AA).

44. Section 109E(3) provides:

A principal certifying authority for building work or subdivision work to be carried out on a site is required to be satisfied:

(a)    that a construction certificate or complying development certificate has been issued for such of the building work or subdivision work as requires development consent and over which the principal certifying authority has control, before the work commences on the site, and

(b)    that the principal contractor for the work is the holder of the appropriate licence and is covered by the appropriate insurance, in each case if required by the Home Building Act 1989, before any residential building work over which the principal certifying authority has control commences on the site, unless the work is to be carried out by an owner-builder, and

(c)    that the owner-builder is the holder of any owner-builder permit required under the Home Building Act 1989, before an owner-builder commences on the site any residential building work over which the principal certifying authority has control, and

(d)    that building work or subdivision work on the site has been inspected by the principal certifying authority or another certifying authority on such occasions (if any) as are prescribed by the regulations and on such other occasions as may be required by the principal certifying authority, before the principal certifying authority issues an occupation certificate or subdivision certificate for the building or work, and

(e)    that any preconditions required by a development consent or complying development certificate to be met for the work before the issue of an occupation certificate or subdivision certificate have been met, before the principal certifying authority issues the occupation certificate or subdivision certificate.

46. With respect to s 109E(3)(d), the occasions prescribed by EPA Reg, 162A(4) as those on which, in relation to a class 1 or 10 building under the BCA, the building work must be inspected by the principal certifying authority, were:

(a)   At the commencement of the building work,

(b)   After excavation for, and prior to the placement of, any footings, and

(c)   Prior to pouring any in-situ reinforced concrete building element, and

(d)   Prior to covering of the framework for any floor, wall, roof or other building element, and

(e)   Prior to covering waterproofing in any wet areas, and

(f)   Prior to covering any storm water drainage connections, and

(g)   After the building work has been completed and prior to any occupation certificate being issued in relation to the building.

47. These are the “Critical Stage Inspections” referred to in cl 10 of the PCA Agreement. Other than the last, which must be carried out by the principal certifying authority, if the principal certifying authority agrees, each may be carried out by another certifying authority: EPA Reg 162A(2), (3).

48. The principal certifying authority and each other certifying authority that undertakes a critical stage inspection must make a record of that inspection: EPA Reg 162B(1). That record must be made as soon as practicable after the inspection is carried out and include details of the type of inspection, the identity of the certifying authority and “whether or not the inspection was satisfactory in the opinion of the certifying authority”: EPA Reg 162B(3), (4). The regulation does not provide that copies of any such record must be provided to the owner or developer. In this case, the documents issued by the Council’s building surveyor constituted the record of the inspections.

49. Section 109H contains restrictions on the issue of occupation certificates, whether interim or final. Sub-sections (2) and (5) provide:

(2)    An occupation certificate must not be issued unless any preconditions to the issue of the certificate that are specified in a development consent or complying development certificate have been met.

…

(5)    A final occupation certificate must not be issued to authorise a person to commence occupation or use of a new building unless:

(a)    a development consent or complying development certificate is in force with respect to the building, and

(b)    in the case of a building erected pursuant to a development consent but not a complying development certificate, a construction certificate has been issued with respect to the plans and specifications for the building, and

(c)    the building is suitable for occupation or use in accordance with its classification under the Building Code of Australia, and

(d)    such other matters as are required by the regulations to be complied with before such a certificate may be issued have been complied with. [italics added]

50. The conditions of the development consent granted on 22 April 2008 included that the applicant, Mr Acres, arrange builders indemnity insurance under the HB Act (condition 10) and that there be a contract of insurance in force which complies with the HB Act before any works commence (condition 15). In each case, the reason for the imposition of that condition was described as “Statutory requirement”.

51. With respect to s 109H(2), there were only four conditions (conditions 34 to 37) of that consent which had to be satisfied “prior to the issue of an occupation certificate”. None is relevant in the present context. That development consent in its closing paragraphs also included the following statements by way of information:

All building work must be carried out fully in accordance with the conditions of the development consent and it is an offence to carry out unauthorised building work that is not in accordance with the development consent.

…

Council may also serve a notice and an order to require the demolition/ removal of unauthorised building work or to require the building to be erected fully in accordance with the development consent.

52. The offence provision referred to is EPA Act, s 125. Section 121B enables a consent authority to issue notices to a developer to cease to carry out specified work, or to comply with a development consent, in either case where the consent is not being complied with, or the building work is being carried out in contravention of that Act: see items 15 and 19 in the Table following s 121B(1). The same power is given to an accredited certifier when acting as the principal certifying authority: EPA Act, s 109L.

53. Finally, the provisions of the Building Professionals Act 2005 (NSW) require that accredited certifiers exercising the functions of a certifying authority have insurance against any liability to which they may become subject as a result of exercising that function (“the required insurance”) and that such a certifier empowered by a council to exercise those functions on its behalf is covered by such insurance “if the council is indemnified by its general insurance policy against any liability to which it may become subject as a result of the exercise of those functions by the accredited certifier”: ss 63, 65; Building Professionals Regulation 2007 (NSW), Pt 4, divs 2, 3.

Purchasers’ claim in negligence against the Council

The pleadings

54. The purchasers alleged that the Council “had a common law duty of care in the exercise of its duties as consent authority, acting as the PCA conducting critical stage inspections and issuing a Final Occupation Certificate”. That duty was alleged to be “one to take positive action to protect the safety and interests” of the purchasers and their invitees: Amended List Statement, [83]–[84]. The particular critical stage inspections which the purchasers alleged had been conducted in breach of duty were those carried out on 8 July and 15 December 2008. The purchasers also alleged that the Council owed statutory duties in accordance with EPA Act, ss 109E(3)(d), (e), 109H(5)(b), (c).

55. Breach of those common law and statutory duties, causation and damage were pleaded as follows:

[85]   In breach of its duty of care and/or in breach of its statutory obligations, the [Council]:

a.    permitted the First Defendant [Mr Acres] to carry out works otherwise than in a proper and workmanlike manner;

b.   permitted the First Defendant to carry out works contrary to relevant laws and approvals;

c.   failed to carry out inspection of the wet areas prior to tiling;

d.    failed to carry out critical stage inspection works in a proper and workmanlike manner, in that at the inspection on 15 December 2008, their inspector Sashi Sasidharan, failed to: [There followed particulars of defects which were alleged not to have been identified and required to be rectified.]

e.    failed to carry out the critical stage inspection works in a proper and workmanlike manner, in that at the inspection on 8 July 2008 (“the blockwork inspection”), their inspector Sashi Sasiharan, failed to: [There followed particulars of defects alleged not to have been identified or required to be rectified.]

[86]   With the knowledge of the defects in the Works as particularised above, and without requiring adequate certification of the Works as executed, permitted the First Defendant to obtain a Final Occupation Certificate.

[87]   As a result of failing to require the First Defendant to produce any adequate certification, the [Council] failed to require the First Defendant to rectify work which was carried out otherwise than in a proper and workmanlike manner, as detailed in defects reports later obtained by the Plaintiffs.

[88]   As a result of failing to require the First Defendant to produce adequate certification, the [Council] failed to require the First Defendant to carry out works in accordance with the relevant laws and approvals and in fact endorsed and ratified the First Defendant’s non-compliant works as detailed in defects reports later obtained by the Plaintiffs.

[89]   As a result of failing to require the First Defendant to produce adequate certification, the [Council] approved or certified works which had been carried out otherwise than in a proper and workmanlike manner, as detailed in defects reports later obtained by the Plaintiffs; and

[90]   As a result of failing to require the First Defendant to produce adequate certification, the [Council] approved or certified residential building works which were not suitable for occupation or use as a residential building.

[91]   As a result of the above breaches of its common law and statutory duties, the [Council] issued a Final Occupation Certificate. Had the Final Occupation Certificate not been issued the Dwelling could not have been sold and the Plaintiffs would not have suffered any loss.

[92]   As a result of the breaches the Plaintiffs have suffered loss and damage.

56. It should be noted immediately that the purchasers’ case as pleaded has two parts. On the one hand, the allegations of breach in [85], [87] and [88] invoke a duty “to take positive action”, namely to have defective work rectified. In any “but for” causation analysis, the purchasers would have to establish that the Council would have insisted on Mr Acres rectifying defects and that he would have complied, thereby ensuring that the building was constructed free of latent defects. However, causation of the purchasers’ claimed loss was not pleaded by reference to such a counterfactual. On the other hand, the allegations of breach in [86], [89] and [90] and of causation in [91] assume a duty with a narrower scope concerned only with the issue of the occupation certificate. In the causation counterfactual for breach of that duty, the occupation certificate would not have been issued, the absence of an occupation certificate would have precluded any sale by Mr Acres, and the purchasers would not have acquired the property and would not have suffered any loss.

57. The damage claimed by the purchasers was the cost of rectifying the defects. In making this claim the purchasers may have assumed that the cost of rectifying the defects represented the diminution in the value of the property upon those defects becoming manifest. Such diminution was identified in Bryan v Maloney (1995) 182 CLR 609 at 617 (Mason CJ, Deane and Gaudron JJ) as the economic loss inflicted by the professional builder of a house on a subsequent owner. However, where purchasers allege that they would not have acquired property but for negligent advice or information, a description of their economic loss may need to account for benefits resulting from that acquisition. Such a description would be consistent with the ordinary measure of damages for negligent misstatement, being the amount necessary to restore plaintiffs to their position before the making of the statement: Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225 at 255 (Mason J); Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 530 (Mason CJ, Dawson, Gaudron and McHugh JJ).

58. The Council denied that it owed any common law duty of care to the subsequent owners of the property. It also denied any statutory duties of care arising under EPA Act, s 109E(3) or 109H(5). By its Amended List Response, it admitted, however, that it had failed to carry out the two pleaded critical stage inspections in a proper and workmanlike manner and, as a result, that it failed to discover structural defects in the works and issued an occupation certificate in circumstances where the building was not fit for occupation and use. It relied on four defences under Civil Liability Act, ss 5R (contributory negligence), 35 (proportionate liability on the basis that the purchasers’ claim against Mr Acres, MHE and the Council was an apportionable claim), 43 (alleged breach of statutory duty by public authority) and 43A (exercise of special statutory powers).

The primary judge’s findings

59. The primary judge rightly accepted that the purchasers’ claim was to recover damages for pure economic loss and that foreseeability of that loss was therefore insufficient to establish a duty of care: Judgment [94], [97]. Addressing the “salient features” of the relationship between them and the Council, his Honour held that the purchasers relied on the Council to exercise care in issuing the final occupation certificate; that the Council knew of the likelihood of that reliance; and that it was to be taken to have assumed, in relation to prospective purchasers, the responsibility of “certifying accurately”: Judgment [360], [363]. On that basis, the primary judge concluded “that the Council, in its capacity as PCA, did owe to the plaintiffs a duty to use reasonable care in performing its critical stage inspections, and in issuing the final occupation certificate” and held that duty was “coextensive with the contractual and tortious duty that the Council owed to Mr Acres under and in respect of the PCA Agreement”: Judgment [373]. That known or expected reliance was also considered sufficient to have made the purchasers unable to protect themselves from the consequences of the Council’s want of care in issuing the certificate, and accordingly “vulnerable” in the relevant sense: Judgment [363].

60. The precise scope of the duty found is apparent from his Honour’s reasoning in support of its existence. The risk of harm which the primary judge found to be “reasonably foreseeable” (Civil Liability Act, s 5B(1)(a)) was that resulting from the negligent certification of the building as suitable for use and occupation in circumstances where there were latent defects: Judgment [363(3)], [365]. His Honour’s findings of actual reliance and the Council’s knowledge of or expectation as to that reliance were directed to the negligent issue of the occupation certificate. Thus, the duty of care found was concerned with that act, and not any earlier negligent acts or omissions of the Council when conducting critical stage inspections (except to the extent that they resulted in the decision to issue) in deciding whether or not to give directions to Mr Acres during the course of the carrying out of the works.

61. Consistently with that being the position, at Judgment [335], his Honour endorsed the Council’s criticism of the pleaded formulation of its duty as being “to take positive action”, and noted that the law does not (generally) recognise positive duties of care, as to which see the discussion in Pyrenees Shire Council v Day (1988) 192 CLR 330; [1988] HCA 3 at [101]–[102] (McHugh J). More relevantly, the purchasers do not contend in the appeal for a duty which has that broader scope or which required the Council to act during the course of the works to ensure that there were no defects, or to have any defects remedied. They submit that the Council’s actionable breach of duty as found by the trial judge was the issue of the occupation certificate in relation to a building which was not in fact suitable for occupation and use. This makes it unnecessary to consider whether the Council as principal certifying authority or consent authority was under any broader duty, including as to the exercise of its powers under EPA Act, ss 109C, 121B. The primary judge’s analysis as to the existence of a duty of care was not directed to, and does not support the finding of, such a duty and the purchasers do not contend otherwise.

62. The primary judge held that, had the Council undertaken its inspections with due care, it would have become aware of all the alleged defects except for the defective wet-area water proofing (items 8, 9, 10, 18 and 19), the northern boundary retaining wall (item 21) and work not undertaken by Mr Acres as owner-builder (items 15, 16 and 20). In relation to the water proofing, the Council certifier did not inspect the works before the waterproof membranes were applied and, instead, relied on a certificate from a waterproofing contractor. The primary judge held that the certifier was not negligent in doing so: Judgment [384]. In relation to the northern boundary retaining wall, the primary judge held, as the Council contended, that it did not form part of the approved development: Judgment [389], [391].

63. His Honour concluded at Judgment [388]:

It follows that there was no basis for the Council, acting as PCA, to certify, as it did in the final occupation certificate, that the extension was fit for occupation and use as a dwelling house. The evidence shows that it was plainly unfit for such occupation and use, because it was structurally defective, and because those structural defects presented and present a very real threat to personal safety and property.

64. That conclusion was in accord with the concession made by Mr Sasidharan in his evidence. It is a finding as to breach of the narrower duty referred to above. However, in relation to factual causation under Civil Liability Act, s 5D, his Honour went beyond the purchasers’ pleaded case and held that, had the Council carried out its inspection obligations as PCA in a competent and professional manner, it would have detected non-compliance when the stage inspections were being undertaken and at that time “should have required the non-compliance to be rectified”: Judgment [396]. His Honour also found that, if the certifier had threatened Mr Acres with the issue of a stop-work notice (presumably by exercising the power under s 121B, and in particular item 19 in the Table), the “overwhelming likelihood” was that Mr Acres would have done what the Council required: Judgment [397]. In this last respect, the primary judge considered the Council’s position to differ from that of MHE: Judgment [323].

65. This analysis assumes a broader formulation of the scope of the Council’s duty than that found, which was to exercise reasonable skill and care to avoid the harm resulting from the negligent issue of an occupation certificate. For the following reason given by the Court (French CJ, Crennan, Kiefel, Gageler and Keane JJ) in Wallace v Kam (2013) 250 CLR 375; [2013] HCA 19 at [24], his Honour’s analysis does not support a finding of factual causation based on a breach of that duty:

A limiting principle of the common law is that the scope of liability in negligence normally does not extend beyond liability for the occurrence of such harm the risk of which it was the duty of the negligent party to exercise reasonable care and skill to avoid. Thus, liability for breach of a duty to exercise reasonable care and skill to avoid foreseeable harm does not extend beyond harm that was foreseeable at the time of breach. In a similar way, “a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action” but “only for the consequences of the information being wrong”.

66. On appeal, the purchasers seek to support the primary judge’s ultimate conclusion as to factual causation but not by the analysis adopted by his Honour and described above. They submit, in accordance with their pleaded case, that, had the Council performed its certifying duty with reasonable care, an occupation certificate would not have issued, in which event the property could or would not have been offered for sale and they would not have purchased it.

67. Having found a breach of a common law duty that caused the purchasers’ loss, the primary judge did not deal with whether there was any statutory duty or breach of such a duty: Judgment [399]–[402]. The purchasers do not in the appeal seek to support his Honour’s judgment by a notice contending for the existence and breach of any of the pleaded statutory duties. Accordingly, those questions may be left unanswered. So too may the question as to the merits of the Council’s pleaded defences under Civil Liability Act, ss 43, 43A because the Council does not challenge the primary judge’s implicit rejection of them.

Was there a duty of care?

Pure economic loss

68. It is now not controversial that a claim by a subsequent owner to recover the cost of repairing latent structural defects in a building is one for pure economic loss: Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 at [20] (Gleeson CJ, Gummow, Hayne and Heydon JJ); Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36 at [47] (Hayne and Kiefel JJ). Those damages are not recoverable “if all that is shown is that the defendant’s negligence was a cause of the loss and the loss was reasonably foreseeable”: Woolcock at [21]. Rather, in a case where a novel duty of care to avoid such loss is propounded, it is necessary to focus, as the primary judge did, on the presence and absence of features or factors which in earlier cases have assisted in determining whether that duty should be imposed: Sullivan v Moody (2001) 207 CLR 562; [2001] HCA 59 at [50] (Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ); Brookfield at [24]–[25] (French CJ); Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258 at [102]–[103] (Allsop P). These features sometimes overlap and assume different significance depending on the circumstances in which the duty is said to arise. In this case, the relevant features are the foreseeability of harm, reliance and assumption of responsibility, and vulnerability.

69. The plurality in Woolcock at [23] explained the significance and meaning of “vulnerability” in this context:

Since Caltex Oil, and most notably in Perre v Apand Pty Ltd, the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. "Vulnerability", in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, "vulnerability" is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre, the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant's negligence in sowing a crop which caused the quarantining of the plaintiffs' land. In Hill v Van Erp, the intended beneficiary depended entirely upon the solicitor performing the client's retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor's certification of the accounts of the company.

70. In some cases, the absence of vulnerability may be determinative against the existence of any duty. As Hayne and Kiefel JJ noted in Brookfield at [51], the plurality in Woolcock founded their conclusion, that the engineering company in that case did not owe the subsequent purchaser a duty of care, on the subsequent purchaser’s failure to prove that in proceeding to acquire a commercial building it was unable to protect itself from the economic consequences of the engineer’s negligence in designing the foundations, and accordingly vulnerable in a relevant sense.

71. The plurality in Woolcock also accepted at [24] that negligent misstatement cases, such as Mutual Life & Citizens’ Assurance Co Limited v Evatt (1968) 122 CLR 556 and Shaddock, may be explained by reference to the notion of vulnerability. In such cases, a plaintiff is unable to protect itself from the consequence of the defendant’s want of reasonable care because it has relinquished that ability by placing its reliance on the defendant for information or advice with respect to a subject that carries the risk of economic loss. In Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 at [10], Gleeson CJ had observed that “knowledge (actual, or that which a reasonable person would have) of an individual, or an ascertainable class of persons, who is or are reliant, and therefore vulnerable, is a significant factor in establishing a duty of care” (emphasis added). See also Dansar Pty Ltd v Byron Shire Council (2014) 89 NSWLR 1; [2014] NSWCA 364 at [177] (Meagher JA, Leeming JA agreeing).

72. The duty of care found by the primary judge is a duty to take care to avoid economic loss. It is not a duty directed to avoiding the risk of physical injury to persons occupying or using a new building. Whether the Council has such a duty and may be liable for such injuries (either to the owner or occupier of the building or the person injured) depends on the application of quite different principles from those applying to the purchasers’ claim. One reason for this is that the common law “values the physical integrity of the person at a level well above the interests of commerce”: Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1999] 2 Qd R 236 at [19]–[20] (McPherson JA), cited in Brookfield at [126] (Crennan, Bell and Keane JJ). For that reason, it tolerates the “[u]nscientific … distinction between ‘pure’ economic loss, ‘parasitic’ economic loss, and damage to property”: Tame v New South Wales (2002) 211 CLR 317; [2002] HCA 35 at [6] (Gleeson CJ). A related reason may be that the primary interest sought to be secured by the EPA Act in requiring certification to authorise occupation and use of a new, renovated or altered building, is the safety of those doing or seeking to do so.

Foreseeability of harm

73. The primary judge held that it was reasonably foreseeable that a purchaser “would suffer loss” if the Council carried out its inspections negligently, failed to detect obviously non-compliant work, and as a result certified that a building with structural defects was fit for use and occupation: Judgment [365]. That conclusion, which is not challenged in the appeal, does not expressly indicate why it was foreseeable that such a purchaser would suffer economic loss if an occupation certificate was negligently issued where there are latent structural defects. There seem to be two possible explanations. One is that the purchaser would rely on the issue of the certificate in deciding whether or not to proceed. The other is that the vendor would or could not have sold the property in the absence of an occupation certificate.

74. The purchasers’ causation case rests on the latter proposition. However, their argument in support of the duty of care found by the primary judge also places emphasis on his Honour’s findings that there was “actual reliance” and, on the part of the Council, an expectation of such reliance: Judgment [360], [363(1)]. I will address those conclusions when dealing with reliance and assumption of responsibility as “salient” factors.

75. Under either explanation, the risk of harm which must be foreseeable is the prospect of economic loss suffered as a result of the acquisition and ownership of a residential property with latent structural defects. Consistently with the observation at [57] above, any inquiry as to foreseeability of harm may need to take account of the benefit of the statutory warranties and home warranty insurance. However, even if that is so, it remains reasonably foreseeable that a subsequent purchaser will suffer some loss in the event that an owner-builder becomes insolvent and the statutory insurance is insufficient to cover the diminution in the property’s value.

76. Though not decisive on the issue of foreseeability, the existence of those statutory rights and the purchaser’s ability to secure further contractual protection are significant to questions of reliance, assumption of responsibility and vulnerability, to which I will now turn.

Reliance and assumption of responsibility

77. The presence of reliance and assumption of responsibility can provide an exception to the general rule that damages are not recoverable for pure economic loss, even if that loss is reasonably foreseeable: Woolcock at [22]; Brookfield at [127]. The most familiar example is the negligent misstatement cases, which depended on proof of “known reliance (or dependence) or the assumption of responsibility or a combination of two”: Tepko Pty Ltd v Water Board (2001) 206 CLR 1; 2001 [HCA] 19 at [73]–[75] (Gaudron J). In Tepko, the plurality (Gleeson CJ, Gummow and Hayne JJ) at [47] (citing Barwick CJ in Evatt at 571) described the features of the “special relationship” in which the law will import such a duty of care as requiring that “the speaker realize or the circumstances be such that [it] ought to have realized that the recipient intends to act upon the information or advice” in connection with some matter of business or serious consequence and that the “circumstances must be such that it is reasonable… for the recipient to seek, or accept, and to rely upon” the information or advice.

78. In Bryan v Maloney, the builder was held to owe a duty of care to the subsequent owner. The relationship between the builder and original owner included a “non-detailed” (at 622) contract that did not describe the builder’s obligations as to quality of design and construction in specific and detailed provisions. At 624, Mason CJ, Deane and Gaudron JJ described it as:

… characterized by the kind of assumption of responsibility on the one part (i.e. the builder) and known reliance on the other (i.e. the building owner) which commonly exists in the special categories of case in which a relationship of proximity and a consequent duty of care exists in respect of pure economic loss. …

79. Their Honours assimilated the position of the original owner with that of the subsequent owner and, for that reason, concluded that the builder’s relationship with the latter also should be characterised as one based on the same assumption of responsibility and known reliance. In Woolcock, the subsequent owner did not allege that the relationship between the engineer and original owner was characterised by reliance and an assumption of responsibility, and the existence of any duty of care to avoid economic loss turned on whether that subsequent owner was vulnerable to the economic consequences of any negligence of the engineer: see the plurality judgment in Woolcock at [26]–[27], [31]; and Brookfield at [57] (Hayne and Kiefel JJ), [130] (Crennan, Bell and Keane JJ). In the latter case applying the same approach, the subsequent owners, and the Owners Corporation as their proxy, were held not to be incapable of protecting themselves, at least by contract, from the consequences of the builder’s want of care and for that reason no duty of care arose: at [23] (French CJ), [34], [56]–[58] (Hayne and Kiefel JJ), [130]–[132] (Crennan, Bell and Keane JJ), [185] (Gageler J).

80. Here, the purchasers’ case at trial was not that the occupation certificate, or any statement in it, constituted a negligent misstatement on which they had relied. In the course of the opening addresses, senior counsel for the purchasers stated that their case against the Council was “not one of actual reliance” on any certification provided. At the same time, reference was made to the fact that a copy of the occupation certificate was attached to the sale contract (special condition 16). In that context, any reliance was said to have existed “in a general sense”.

81. Put slightly differently, and this is borne out by Mr Cox’s evidence to which reference is made below, the purchasers’ case included that they expected that the Council, and the builder, had undertaken their tasks properly. In MM Constructions (Aust) Pty Ltd v Port Stephens Council [2012] NSWCA 417 at [94], Allsop P described such reliance as being “no more than a reasonable expectation of members of the public”. See also Dansar at [176]. In Brookfield, Hayne and Kiefel JJ observed at [57] that, whilst reliance in this general sense may be an element in demonstrating vulnerability, it is not a sufficient element. Reference also should be made to the rejection in Pyrenees of the doctrine of general reliance as justifying the imposition of a duty of care on a public authority: see at [18]–[20] (Brennan CJ), [157]–[165] (Gummow J), [225]–[232] (Kirby J). Furthermore, as the plurality in Tepko emphasised at [47], to engage the principles which import a duty of care with respect to the provision of advice or information, the “speaker” must actually or constructively realise that the advice or information is to be relied on, and the reliance must be reasonable.

82. The focus of the inquiry as to the presence of these last features in this case must be the statutory context in which the occupation certificate was issued. That context is summarised earlier. The following matters should be emphasised.

83. First, the suitability of a building for occupation and use, as the facts of this case demonstrate, does not require that all of the building work which is the subject of the development consent has been carried out in accordance with the approved plans and specifications, and in a proper and workmanlike manner.

84. Secondly, the compliance certificates provided for in Part 4A may in terms “certify” that particular building work complies with specified plans and specifications or that a particular condition with respect to that work, such as a condition attached to a development consent, has been compiled with. The “critical stage inspections” required by s 109E(3)(d) are undertaken for a different purpose, namely to enable the certifying authority to be satisfied that an occupation certificate which “authorises” occupation and use may be issued. While records of those inspections have to be made and kept, there is no requirement that those records then or subsequently be made available to the person having the benefit of the development consent, or to any builder carrying out the work.

85. Thirdly, the responsibility for ensuring that the building work is undertaken in accordance with the conditions of that consent is upon the owner or other person having the benefit of it. Such work must not be commenced until the requirements of s 81A(2) have been satisfied. Those requirements include that a construction certificate be issued; that a principal certifying authority be appointed; and, if residential building work is involved, that the certifying authority be either notified that the work is being carried out by an “owner-builder” or satisfied that a licensed building contractor has been appointed. The function of the principal certifying authority, although appointed by the owner, is regulatory in the sense that the certifier is required to be satisfied about matters that are directed to authorising the occupation and use of the completed building in accordance with its BCA classification, and to ensuring that the protections the HB Act provides for owners and subsequent purchasers are available if residential building work is involved.

86. In this context, it is not apparent why a principal certifying authority in the Council’s position ought to have realised that a subsequent purchaser of Mr Acres’ property would rely on the issue of the occupation certificate in deciding whether to acquire the property and, if so, on what terms. Nor is it apparent why, in those circumstances, it would have been reasonable for such a purchaser to rely on the issue of that certificate in so deciding.

87. Such a purchaser would have the benefit of the owner-builder’s statutory warranties. Those warranties include that all of the residential building work would be performed with due care and skill and in accordance with the relevant plans and specifications; that the materials used would be good and suitable; and that the work would result in a building reasonably fit for occupation as a dwelling: HB Act, s 18B(1)(a), (b) and (e). They would protect that purchaser from the existence of any latent defects resulting from the building work. The purchaser also would have the benefit of insurance of at least $300,000 against the risk of the vendor’s subsequent insolvency.

88. Furthermore, the occupation certificate does not in terms or effect certify that the building work does not, or is not likely to, contain latent defects (whether structural or otherwise) or that the works comply with the relevant plans and specifications or the conditions of the development consent. Nor is it directed to the economic incidents of property ownership, as distinct from the occupation and use of buildings by those entitled to do so or their invitees. That subject matter is necessarily narrower than the subject matter of the statutory warranties, which indemnify against any non-compliance or inadequacy in the building work.

79. The purchasers’ evidence did not, in any event, support a case that there was reliance of the kind that would bring them within the class of persons owed a duty of care with respect to the provision of information or advice. Reference has already been made to aspects of Mr Cox’s evidence (see [31]–[34] above). During cross-examination, he gave the following specific evidence concerning his understanding of Mr Drinkwater’s report, and the qualifications and limitations to which it was subject (as to which also see [24], [25] above):

Q:   … you would have noticed that he mentioned a number of restrictions that prevented him or limited him in terms of the inspection he could undertake?

A:   That’s correct.

Q:    So you knew that there was a possibility that there could be defects in areas which he had not been able to inspect?

A:   That’s fair enough.

Q:    Knowing all the matters that I’ve put to you, you nevertheless decided, with your wife, to go ahead and purchase the property for this price and on the terms set out in the contract?

A:   That’s correct.

…   

Q:   So you read the report of the building inspector, you saw that there were limitations to the extent of the investigations he could undertake. You sought specific protection in relation to one particular problem but otherwise you decided that you would agree to purchase the property subject to all defects latent or patent. That’s correct, isn’t it?

A:   That is correct.

90. His evidence was not that the occupation certificate was relied on as removing the need to seek any protection by the terms of the contract from the possibility of latent defects in the building work. Nor could it be inferred that he had done so, the purchasers already having the benefit of statutory warranties which would provide protection against that very risk.

91. It is necessary now to consider the findings of the primary judge. His Honour concluded that there had been both an expectation of reliance and “actual reliance”. He also held that the Council, knowing that intending purchasers would rely on the occupation certificate, assumed the responsibility of certifying accurately: Judgment [360]. He earlier referred to Mr Cox’s evidence that he had seen the occupation certificate and drawn “some comfort” from it: Judgment [359]. See also [32] above. And his Honour quoted the Council certifier’s evidence of understanding that subsequent purchasers “might look at” the occupation certificate to satisfy themselves that the work had “been inspected and passed”: Judgment [358]. Finally, the primary judge found at Judgment [363(3)] that the Council must have recognised that the purchasers would be likely to suffer economic loss if contrary to the terms of the occupation certificate the property was not suitable for occupation as a dwelling. This last finding proceeds from the finding of “actual reliance”, treating that finding as being that the purchasers relied on the issue of the occupation certificate in deciding to acquire the property.

92. In my view, the evidence did not support such a finding. The purchasers’ evidence was of no more than a general expectation that the Council had acted properly or reasonably in going about its task in issuing the certificate. They expressly acknowledged by special condition 16 of the contract for sale that the occupation certificate might be wrong, and Mr Cox’s unqualified evidence was that he accepted that there might be latent defects. That the purchasers were nonetheless content to proceed is not surprising considering that they had the benefit of the statutory warranties, and home warranty insurance. In relation to the Council’s knowledge of any reliance by the purchasers, Mr Sasidharan’s evidence also went no further than acknowledging the existence of a general expectation of the kind referred to above.

93. It follows, in my view, that this is not a case in which there was reliance or assumption of responsibility or a combination of the two, which exposed the purchasers to the consequences of the Council’s want of care in issuing the occupation certificate, and which for that reason was sufficient to give rise to a duty of care. It remains to consider whether the purchasers were otherwise vulnerable in a relevant sense. His Honour held that they were, but only because of the reliance and assumption of responsibility that he had found: Judgment [363(4)].

Vulnerability

94. The immediate consequence of the issue of the final occupation certificate was that Mr Acres, and any other person entitled to do so, could commence to occupy and use the part of the building that consisted of the alterations and additions. Otherwise, no one could have done so until the expiration of 12 months from the date on which it was first occupied or used: EPA Act, s 109M.

95. Significantly, there was no immediate and irretrievable detriment suffered by any prospective purchaser of the property flowing from the fact of the careless issue of the certificate. Like the plaintiff in Dansar, the purchasers are in a position which stands in contrast to “that of the plaintiffs in Hill v Van Erp, Caltex Oil and Perre v Apand. In Caltex Oil the detriment suffered was the loss of the enjoyment of Caltex’s right to use property (the pipeline) which was vital to the ongoing conduct of its business …. In Hill v Van Erp the intended beneficiaries’ interests were ‘totally and unavoidably dependent upon the proper performance of a function within the sole province of the solicitor’… In Perre v Apand, the plaintiffs were denied access to the ‘principle and lucrative market’ in which they were selling and entitled to sell their potatoes…”: Dansar at [179]. In each of those cases, the plaintiff had no opportunity, and for that reason was unable, to protect itself from the economic loss which was a direct consequence of the defendant’s want of care.

96. I have dealt with the primary judge’s conclusion that the Council’s negligence caused economic loss because the purchasers relied on the issue of the occupation certificate when deciding whether to proceed. The alternative analysis, and that relied on by the purchasers in this Court, is that the Council’s negligence exposed them to the risk of harm because, had the Council not issued the occupation certificate, the property (containing latent defects) could not and would not have been sold. This way of putting the purchasers’ case does not require there to have been any actual reliance upon the issue of the occupation certificate.

97. However, their position as prospective purchasers did not entail vulnerability either to the consequences of the owner-builder’s want of care or to any want of care on the part of the Council. In Woolcock at [31], the plurality described the ways in which a subsequent purchaser might protect itself against the economic consequences of negligence of those involved in the construction of a building. They include taking a warranty “of freedom from defect” from the vendor or an assignment of the vendor’s rights against the builder or other parties in respect of any claim for defects in the building. In relation to the owner-builder, the purchasers remained able by negotiating the price and non-price terms on which they purchased the property to protect themselves against the risk of economic loss presented by latent defects. And they had the benefit of statutory warranties from the owner-builder: Brookfield at [29]–[30], [57]–[58], [142], [185]–[186]. For those reasons, they were not vulnerable to any want of care on the part of the Council in issuing the occupation certificate.

Conclusion

98. There was no reliance or assumption of responsibility such as would give rise to a duty owed by the Council to the purchasers to exercise reasonable care in the issue of the occupation certificate. In the absence of any such reliance, the purchasers were not vulnerable in the sense that they were exposed to, but not able to protect themselves from, the Council’s want of reasonable care in issuing that certificate.

99. It follows that the Council was not subject to the duty of care found by the primary judge and that the Council’s liability appeal, made by grounds 1 to 5, must be allowed. That makes it unnecessary, and given the observations at [65]–[66] inappropriate, to consider the causation issues raised by grounds 7 and 8. Had the Council been liable for breach of a duty involving reliance on the occupation certificate, in assessing damages, it would have been necessary in my view to take into account the value of the purchasers’ right of action for breach of the statutory warranties, as well as their rights under the home warranty insurance.

100. Grounds 10 to 12 concern matters relevant to an assessment under Civil Liability Act, Pt 4 of responsibility between concurrent wrongdoers, in this case, Mr Acres, MHE and the Council. MHE was not a concurrent wrongdoer vis-à-vis the purchasers, and Mr Acres’ liability to the purchasers for breach of the statutory warranties was not in respect of an apportionable claim to which that Part applies: Civil Liability Act, s 34(3A). Therefore, this question of apportionment only arises in relation to the purchasers’ claim against the Council. Because that claim is to be dismissed, the question to which these grounds are directed does not arise.

Mr Acres’ claim against the Council

101. Mr Acres was found liable to the purchasers for breach of the statutory warranties. He was represented by solicitors at the pleading stage of the proceedings before the primary judge, but not at the final hearing. By his Cross-Claim Statement, Mr Acres alleged that it was a term of the PCA Agreement that the Council would provide its services as a qualified building certifier and perform those obligations with due care, skill and diligence. The duty of care alleged was in the same terms as that alleged by the purchasers against the Council: Cross-Claim Statement, [16], [17]. He claimed, by way of damages for breach of contract and for breach of that duty of care, an indemnity in respect of any liability he was held to have to the purchasers. There was no claim in negligent misstatement, either by reason of the issue of any critical stage inspection “compliance certificate”, or by any statements or conduct of the Council’s building surveyor during any such inspections. Nor did Mr Acres allege that the Council had been retained to supervise the undertaking of building works, or that it had assumed that responsibility.

102. The primary judge dealt with Mr Acres’ case against the Council fairly briefly. He held that the breaches of duty found as between the Council and the purchasers were breaches of an “equivalent implied contractual duty” which existed as between Mr Acres and the Council: Judgment [445]. As the analysis above shows, the breaches found as between the Council and the purchasers were breaches of a duty owed with respect to the issue of the occupation certificate.

103. The scope of that duty did not include the taking of reasonable care in the exercise of the Council’s statutory power to serve notices and make orders requiring an owner-builder to comply with the development consent. A finding that the Council owed Mr Acres such a duty would not have been consistent with the terms of cl 12 of the PCA Agreement, which provided that as between the Council and Mr Acres it was the “agreed responsibility of the owner and their builder or sub-contractors” to comply with all relevant “legislation, consents and approvals”. That clause also recorded that work which was not in accordance with the development consent “may result” in the refusal to issue an occupation certificate and that the Council “may also serve notices and orders to comply with the approval”. There was no covenant by the Council that it would issue such notices and make such orders in the event that it detected work which was not in accordance with the development consent. And an implied term which had the effect of requiring the Council to do so would have been inconsistent with those provisions of cl 12.

104. A procedural fairness question arises in relation to this last point. Mr Acres has been served with the Notice of Appeal but has chosen not to take any part in the appeal. Grounds 9 and 13 of that Notice challenge his Honour’s conclusion that Mr Acres was entitled to an indemnity from the Council in relation to his liability to the purchasers. They thereby raise issues as to the interpretation of the PCA Agreement. Although the Council does not appear to have expressly relied on the language of cl 12 before the primary judge, it did submit that as between the Council and Mr Acres the latter had “primary responsibility for design & construction”. As that ultimate submission, in support of which cl 12 is deployed, was made to the primary judge, reliance on that clause should be permitted.

105. Mr Acres’ pleaded case with respect to causation and his claim to an indemnity was that, as a result of the breaches alleged in [85]–[90] of the purchasers’ Amended List Statement (see [55] above), the Council issued a final occupation certificate and that, had such a certificate not been issued, the property could not have been sold to the purchasers, who in turn would not have suffered any loss or damage. In consequence, by reason of the Council’s breaches, Mr Acres alleged that he suffered loss and damage in the form of his liability under the statutory warranties: Cross-Claim Statement, [19], [20].

106. At Judgment [463]–[464], the primary judge concluded in relation to that claim:

… The simple fact is that, had the certifier done his job, the items of non-compliant and defective work would have been detected. Had the certifier done his job, he would have required rectification of those items of work. Had the defects not been rectified, the certifier could and should have refused to issue the occupation certificate.

In those circumstances, I hold that Mr Acres is entitled to be indemnified in full for the assessed cost of rectification of the defects in question.

107. This conclusion relies on breaches of a duty that was not found as between the Council and the purchasers and not pleaded by Mr Acres as giving rise to his entitlement to an indemnity.

108. In their submissions in support of the judgment in favour of Mr Acres on his cross-claim, the purchasers submit that the primary judge’s conclusion that Mr Acres was entitled to an indemnity should be upheld. In doing so, they describe the loss suffered by Mr Acres, and against which he should be indemnified by the Council, as that arising “as a consequence of the negligent issuing of the final occupation certificate”. In support of that submission reference is made to Judgment [463].

109. As the purchasers’ submission recognises, correctly in my view, the only actionable breach of duty found as between the Council and the purchasers and between the Council and Mr Acres was that of the Council in failing to exercise reasonable care in issuing the occupation certificate. However, if the Council had not issued that certificate, as it is contended should have been the position, the latent defects would have existed and remained unrectified. As against that scenario, Mr Acres is not shown to have suffered any loss. But for the Council’s negligence, he would have continued to own a property which was subject to those defects. Instead, he sold that property at a price which did not take account of their existence and by reason of the statutory warranties is liable for the cost of rectifying them. If, as the purchasers’ damages claim assumes, the difference between what they paid Mrs Acres and the value of what they received is represented by that cost, Mr Acres is no worse off.

110. In accordance with cl 12 of the PCA Agreement, where the only inspections undertaken were the critical stage inspections, and they were conducted for the purpose of issuing the final occupation certificate, Mr Acres as owner and builder remained liable as between himself and the Council for ensuring compliance with the relevant legislation, consents and approvals. In the absence of the Council having undertaken to supervise compliance on Mr Acres’ behalf, it was not liable for the fact that the works did not comply and contained the defects for which he is now liable.

111. Accordingly, the Council’s appeal from the finding that it was liable to indemnify Mr Acres (grounds 9 and 13) should be upheld.

Final orders

112. In a third judgment, Chan v Acres (No 3) [2016] NSWSC 1389, delivered after the notice of appeal was filed, the primary judge dealt with the costs of the proceedings below. The orders sought in that notice do not extend to the costs orders that should be made in the event that the appeal is successful. In that circumstance, if the purchasers and the Council cannot agree as to the costs orders which should be made between them following from the allowing of the appeals, that subject should be dealt with by further written submissions and then decided on the papers.

113. In relation to Mr Acres, the primary judge made no order as to the costs of his cross-claim against the Council. The notice of appeal served on Mr Acres does not seek to disturb that order and no amendment to that notice has been foreshadowed or notified to Mr Acres. In those circumstances, the order made by the primary judge should stand.

114. Taking account of those matters, I propose that the following orders be made:

1. Appeal allowed.

2. In relation to order 1 made on 3 June 2016:

1. Set aside the judgment for the first and second respondents against the appellant in the amount of $510,096.76.

2. Note that the amount of the judgment against the third respondent and in favour of the first and second respondents, and the only amount that the third respondent is liable to pay, is $592,559.57.

3. Set aside orders 4 and 5 made on 3 June 2016.

4. Order that the first and second respondents’ claim against the appellant by their Amended List Statement be dismissed.

5. Order that the third respondent’s cross-claim against the appellant be dismissed.

6. Order that the first and second respondents pay the appellant’s costs of the appeal.

7. Direct that the appellant and first and second respondents confer with a view to agreeing on the costs orders that should be made between them in relation to the proceedings at first instance in order to give effect to these reasons. Having done so, they are to file agreed Short Minutes within seven (7) days of the making of these orders and, in the absence of agreement, to file with Meagher JA’s Associate within fourteen days (14) of the making of these orders written submissions, not exceeding three pages, with respect to the costs orders they seek. Any remaining costs question is to be decided on the papers.

115. SACKVILLE AJA: I agree with the orders proposed by Meagher JA and with his Honour’s reasons. I add the following comment.

116. In RinRim Pty Ltd v Deutsche Bank AG,[1] this Court noted that the decisions of the High Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd[2] and Brookfield Mulitplex Ltd v Owners Corporation Strata Plan 61288[3] establish the following propositions: [4]

“First, a plaintiff who has suffered pure economic loss does not demonstrate that the defendant owed a duty of care simply by proving that the defendant’s negligence was a cause of the loss and that the loss was reasonably foreseeable. Secondly, in a case in which a plaintiff relies on the existence of a duty of care in novel circumstances, the plaintiff’s vulnerability to loss caused by the defendant’s negligence is an extremely important if not determinative consideration. Thirdly, ‘vulnerability’ in this context refers to the plaintiff’s inability or limited ability to take steps to protect itself from economic loss by reason of the defendant’s conduct. Such measures are not limited to entering into contractual arrangements.”

1. [2017] NSWCA 169.

2. (2004) 216 CLR 515; [2004] HCA 16.

3. (2014) 254 CLR 185; [2014] HCA 36 (Brookfield).

4.    RinRim Pty Ltd v Deutsche Bank AG at [133] (Sackville AJA, Beazley P and Payne JA agreeing).

117. As Meagher JA has pointed out,[5] the purchasers’ case at trial was not that the Council had made negligent misstatements on which they relied to their detriment. I agree with his Honour that the primary Judge erred in finding both that the purchasers relied on the issue of the occupation certificate when deciding to acquire the property and that the Council had assumed responsibility to the purchasers for ensuring that the work was undertaken in accordance with the conditions of development consent.

     5. See at [80] above.

118. Even if the purchasers had relied on the occupation certificate when purchasing the property, that of itself would not be sufficient to demonstrate that they were “vulnerable” in the relevant sense. Reliance may be a necessary element in demonstrating vulnerability, but it is not sufficient. [6]

     6.    Brookfield at [57] (Hayne and Kiefel JJ).

119. The purchasers in this case not only had the ability to protect themselves from any want of reasonable care by the Council in issuing the occupation certificate, they were also protected by the legislation which creates a regime of implied statutory warranties enforceable by the purchaser of residential premises against the owner-builder. [7] Moreover, the purchasers had the benefit of the insurance that the owner-builder was required to take out, albeit that the insurance was subject to a monetary limit. [8]

     7. See at [37]-[40] above.

     8. See at [38] above.

120. In these circumstances, the purchasers were not vulnerable in the sense required to establish that the Council owed them the pleaded duty of care.

**********

Endnotes

Amendments

07 September 2017 - [43]: "s 109C(c)" changed to "s 109C(1)(c)"

[52]: "following s 121B" changed to "following s 121B(1)"

[79]: "want to care" changed to "want of care"

[87]: "s 181(a)" changed to "s 181(1)(a)"

Decision last updated: 07 September 2017