Melisavon Pty Ltd v Springfield Land Development Corporation

[2015] HCATrans 86

[2015] HCATrans 086

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B42 of 2014

B e t w e e n -

MELISAVON PTY LTD (ACN 010 635 837)

Applicant

and

SPRINGFIELD LAND DEVELOPMENT CORPORATION

Respondent

Application for special leave to appeal

KIEFEL J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO BRISBANE

ON FRIDAY, 17 APRIL 2015, AT 11.53 AM

Copyright in the High Court of Australia

MR M.R. HODGE:   If it please the Court, I appear for the applicant.  (instructed by Thynne & Macartney Lawyers)

MR P.A. FREEBURN, QC:   If it please the Court, I appear for the respondent.  (instructed by McBride Legal)

KIEFEL J:   Yes, Mr Hodge.

MR HODGE:   Thank you, your Honours.  Your Honours, as the President said below, ordinarily a cause of action in negligence accrues and is complete when there is any manifestation of damage that is ultimately found to be connected to the alleged negligence.  The special leave question is whether that principle has been modified, to use the language of the President below, or there is an exception, to use the language of the New South Wales Court of Appeal in Cyril Smith, with the consequence of that modification or exception being that where the negligent design of a building leads to physical damage to the appearance of that building and that physical damage to the appearance is alleged to cause loss, nevertheless the cause of action in negligence is not complete until there is actual knowledge of the faulty design or the faulty design could be discovered with reasonable diligence. 

The central contention made by the applicant is that if a plaintiff says, as the plaintiff does here, the presence of visible physical damage to my building has caused me loss, and the cause of that visible physical damage is the alleged negligent design.  There is no reason why the cause of action is not complete until that time and must await, or be deferred, until it was known or could reasonably be discovered that there was a negligent design. 

The majority’s view that there is such a modification or development of the law stems from a misreading of a passage from Justice Deane’s judgment in Hawkins v Clayton that Justice Holmes described in her dissent as a puzzling turn of phrase.  What Justice Deane said in Hawkins v Clayton was that economic loss is suffered when the defect was actually discovered or became manifest in the sense of being discoverable by reasonable diligence. 

The majority below proceeded on the basis that the cause of action in negligence was not complete until the negligent design was known or reasonably discoverable.  However, as Justice Holmes said, the negligent design can manifest in the form of physical damage to the building and that is then at that point when the cause of action is complete.  That is consistent with the majority judgment in Bryan v Maloney, which included Justice Deane, and where it was said that the inadequacy in a building’s footings first becomes manifest by consequent damage to its fabric. 

Before I say more about that, can I address why, notwithstanding that the applicant seeks leave to appeal against a refusal to grant summary judgment, and notwithstanding that the summary judgment was sought in a limitation point, and notwithstanding the Court’s caution in Wardley about such cases, special leave should nevertheless be granted, and there are three points.

The first is there is no factual inquiry necessary to decide this point.  If the ordinary principles apply, there is no relevant dispute of fact.  As Justice Holmes noted in her dissent at paragraph [66], application book 48, on the respondent’s own pleadings and evidence, its case is statute barred, applying the ordinary principles.

That is because the respondent’s own evidence is that certain cracking that the respondent alleges by its presence, has or will cause it loss, had already occurred more than six years before the respondent commenced its proceeding.  On the other hand, if there has been some modification of the ordinary principles as identified by the President, then the applicant concedes and has conceded at every level, that it is not entitled to summary judgment.

KIEFEL J:   There are two things that you might need to address.  The principal of them is, of course, that this is an interlocutory matter and that brings into focus the state of the evidence, and is it correct to say ‑ and I am looking at the Court of Appeal judgment at paragraphs [46] and [47] ‑ that there were differences of view about when and to what extent the cracking became obvious.

MR HODGE:   There are differences of view about the cracking across the entirety of the clubhouse, and so there was evidence in the various affidavits about how significant the cracking was across the entirety of the clubhouse and when it became worse.  However, what the applicant ‑ ‑ ‑

KIEFEL J:   But the point being, even on the view for which you contend about what is the requirement of damage, there is a factual issue, is there not, about when damage in the sense of loss of value to the property could be said to have been sustained; the point at which it is damage ‑ taking into account that insubstantial cracks would not qualify as damage?

MR HODGE:   Yes, and in my submission, no, and that is because of the particular pleading that, in effect, on the summary judgment application, my client accepts.  Can I take your Honours to, very briefly, the relevant parts?  On page 26 of the application book, the President sets out there some relevant parts of the statement of claim, themselves extracted from the trial judge’s decision and your Honours will see there is a paragraph [4] there, which is paragraph [4] from the trial judge’s decision, and he extracts paragraph 18 of the statement of claim and, relevantly, my client has focused his application on paragraph 18(k).

So, the way in which the claim is pleaded against my client is that there was damage that occurred in various ways to various parts of the clubhouse and that had been itemised in paragraphs (a) to (k) of paragraph 18, but subparagraph (k) is one particular element of the damage which is damage to the lower level slab.  All of subparagraphs 18(a) to 18(k) are collectively defined in the pleading as the defects and then your Honours will see paragraph 19 of the pleading alleges that:

The defendant’s negligence ‑

and then dropping down to subparagraph (b) over the page on page 27 ‑

in the premises of the allegations contained in this paragraph, caused the Defects.

using the defined term.  Then in paragraph [5] of the trial judge’s decision, extracted just a few lines further down by the President, is the allegation of loss that is made in the statement of claim and that is:

that ‘the [respondent] has suffered, or will suffer, loss and damage rectifying the Defects in a sum not less than –

the amount stated.  So the defects encapsulate all of subparagraphs (a) to (k).  The reason that my client focuses on subparagraph (k) which is, by its presence, alleged to have caused the plaintiff loss is because if your Honours then go to page 31 of the application book, the President there summarises the evidence – not from my client but from the respondent as to the allegation in 18(k).

The effect of what is summarised there is that what is alleged in 18(k) was already present by 31 March 2005 and then various investigations were undertaken as to what had been the cause of it.  But, the point from my client’s perspective is the respondent has pleaded that by the presence of the physical damage it has pleaded in 18(k) it has suffered loss, and its own evidence is that that already existed as at 31 March 2005 and unless it had – and the six years predating the limitation period was from about June 2005.

So the consequence is, on its own pleading and its evidence as Justice Holmes said, it is statute barred if the ordinary principles apply.  I say, if the ordinary principles apply because, of course, if there has been a modification, or there is an exception as found by the majority, then it is not enough that there be this physical damage – this presence of physical damage that is alleged to have caused loss.  It is further necessary that the respondent have known, or been reasonably able to discover – or been able to discover with reasonable diligence that what caused this particular piece of damage was the negligent design.  My client concedes – has always conceded – that if there is such an exception in the law then it is not entitled to summary judgment.

NETTLE J:   Mr Hodge, might not the evidence inform a conclusion as to whether the exception exists or how far it runs?  I am thinking of Wickstead v Browne where Justice Kirby speaks of the necessity to have evidence in relation to a question of whether a trustee owed a duty of care in negligence – ultimately upheld by the High Court – and as to the impropriety in those circumstances and summarily curtailing the proceeding before all the evidence had been determined at trial.  This case seems to me a fortiori one where before you could make a final decision about the putative exception, you would need some evidence.

MR HODGE:   In my submission, no, your Honour.  The reason for that is the President and Justice Lyons in the majority have already decided that there is such an exception and they have applied that exception in order to conclude that my client is not entitled to summary judgment.  That brings me to the second reason why this is an appropriate case for special leave and that is by the interpretation of the majority as to the applicable law, the consequence is that (a) all courts in Queensland are bound to apply that modification or exception, and (b) following Marlborough Gold and Farah that will also apply to all trial division courts and intermediate appellate courts in other States.   So, the effect of this decision, if left to stand, is that this exception that is said to exist in the law of negligence will bind the common law in this country.

NETTLE J:   But you can come again after the trial with the benefit of the evidence to show, as you would say, that their Honours of the majority were wrong.

MR HODGE:   That, your Honour, brings me to the third point as to why this is an appropriate vehicle for special leave, which is that the consequence if, as my client submits, the principle is wrong is that it will be necessary to have an entirely unnecessary trial, on my client’s submission, in order to determine facts that do not need to be determined if the correct principle had been applied, because it is not necessary to know what was known or reasonably discoverable about the cause of the physical damage, it is sufficient ‑ ‑ ‑

NETTLE J:   That is the point.  It may be, you see.  It may be that one does need to know those things before one can form a correct view about the nature of the exception and how far it extends, if it extends at all.

MR HODGE:   In my submission, your Honour, if the ordinary principles apply, which is upon the occurrence of loss the cause of action is complete, it is not necessary to inquire as to what is the state of knowledge about that cause.  But there is something further ‑ ‑ ‑

KIEFEL J:   On one view, the respondent is not contending for a wholly freestanding principle that has not been mentioned.  The principle for which they are contending – you call it an exception – is to be found within the language of some of the decisions and raises the question of even if there have not been factual scenarios to which the words of Justice Deane have been given effect there may nevertheless be such a case.  It seems a rather peremptory exercise to deny consideration of just how far the acceptance of some of those statements was intended to go.

MR HODGE:   Your Honour, can I address that first by dealing with the idea as to whether this is, in fact, a modification of the rule, and that is exactly what the President said below and that is said by her Honour in two places; first, at paragraph [29] of her reasons, on page 33 of the application book, where her Honour says:

In 1985 in Sutherland Shire Council v Heyman Deane J modified that rule in some cases of tortious negligence involving pure economic loss.

Her Honour comes to that again at page 45 of the application book, paragraph [53], where her Honour notes the ordinary principle in the first sentence and then in the second sentence says:

But it is at least arguable that this is a case of pure economic loss where in Australia that principle has been modified.

So her Honour has expressly proceeded on the basis that there exists this modification.  That is also the view espoused by the New South Wales Court of Appeal in Cyril Smith.  If your Honours go back to page 41 of the application book, the President has extracted the relevant part of the reasons of the New South Wales Court of Appeal.  Your Honours will see, at the bottom of paragraph 17 of that extract:

Such a principle would constitute an exception to the rule that a cause of action in negligence accrues when material damage is first suffered.

Then further down in paragraph 19 ‑ and I should say, where the New South Wales Court of Appeal finds this exception is not in the decisions of the High Court and the decision of Justice Deane in Hawkins v Clayton which,

it is said, do not really address that issue, but rather in the decision of the Victorian Full Court in Pullen.  What is said down in paragraph 19 is that, as to that exception, it is not “clearly wrong”, “not necessarily wrong”, but then what goes on to happen and is left out of the extract here is that the New South Wales Court of Appeal says it does not need to further consider that because it is going to decide the case in a different way.

The last point that I would make about that issue is that, in my submission, all of this stems from a view expressed by both Justice Lyons and the President in the majority below that when Hawkins v Clayton is looked at through the ‑ or the decision of Justice Deane in Hawkins v Clayton is looked at through the lens of the Victorian Full Court’s decision in Pullen that the consequence is that this modification or exception arises and, in my submission, it is Justice Holmes in her Honour’s dissent who is correct to say Pullen actually does not stand for that at all.  Pullen is, in fact, a conventional application of the ordinary principles because although it is said Pullen involves very similar facts, in fact, there was a different issue in Pullen. 

The issue in Pullen was that there was cracking that was going on but there were two possible causes of that cracking, one was ordinary settlement, the other was defective footings and the point being made by the Victorian Full Court was that it was not possible to know whether or not the particular cracking that was identified as having occurred more than six years earlier was due to the settlement, the ordinary settlement, or to the defective footing and therefore it could not have been said that time had already commenced running. 

Your Honours, the last point that I wanted to make was that the consequence if it is said that whether there is an exception cannot be determined now is that it must go off to trial is that in both this case and any similar case my client, or a party in a similar position to my client, is forced to the enormous expense of undertaking a full trial about negligence in a construction case with all of the time and costs that is involved in that.  In my submission, that is not – it does not lead to the efficient conduct of litigation where, if the ordinary principles apply and there is no exception or modification, the consequence ought to be, as Justice Holmes found, that the plaintiff’s case here is statute barred.  Those are my submissions.

KIEFEL J:   Yes, thank you, Mr Hodge.  Yes, Mr Freeburn.

MR FREEBURN:   As your Honours have already noted, the applicant proposes to further appeal against the primary judge’s exercise of a discretion to refuse summary judgment.  That makes it an unappealing vehicle.  As your Honours have also noted, both the primary judge and the majority of the Court of Appeal made clear that there are disputed questions of fact.  Now, in this case, those disputes concern these areas – the nature and causes of the cracking; what the parties knew about the nature and cause of the cracking; when they acquired that knowledge; and, possibly also, when they ought reasonably to have acquired that knowledge.

Now, those disputed questions of fact are important because, and to take the two extremes, if the respondent’s witnesses are accepted, all that was observed or observable were minor cosmetic cracking and there was no sign of an underlying defect.  If my learned friend ‑ ‑ ‑

KIEFEL J:   Is that the dispute of fact to which the President refers at those passages that I took Mr Hodge to before?

MR FREEBURN:   Yes, your Honour, there is quite a deal of evidence from, I think, four different witnesses about what they observed at different times through the history of this building from the time of its construction.

KIEFEL J:   So what you are saying is what is not apparent at this point on the evidence is when, even on what Mr Hodge would call the strict statement of principle relating to limitation periods, when the damage was apparent – that is, without recourse to principles such as knowledge, or do you accept that there is something of an extension involved?

MR FREEBURN:   I think my learned friend puts it as an exception ‑ ‑ ‑

KIEFEL J:   Or a modification, yes.

MR FREEBURN:   Or a modification, as the President put it.  In my submission, it is nothing more than a development of the law, as the President explained in some detail, and the development of the law – see, if my learned friend’s case, legal proposition is this, that any observable defect or cracking or hairline fracture is enough, then it will do considerable violence to a whole series of cases starting with Heyman’s Case, the Sutherland Shire Council Case. 

The reason I say that is that in that case Justice Deane explained that in these categories of cases where the plaintiff is suing for pure economic loss, his Honour’s view was that in those cases the damage actually occurs when the inadequacy of the foundations is first known or manifest.  That is because, as his Honour explained, that only then is there actual diminution in the market value of the building. 

That was clear back in Sutherland Shire Council v Heyman, it was approved by three members of the Court in Hawkins v Clayton, it was followed in Wardley, it was followed by a strong Victorian Court of Appeal decision in Pullen v Gutteridge, Haskins & Davey, and can I just stop there. 

Pullen v Gutteridge, Haskin & Davey is almost on all fours with this case.  That was a case where there was a swimming pool, there was cracking, the builder blamed differential settlement.  Here we have a building cracking, the engineers blaming two different causes, including watering.

So we have a case, almost on all fours, and in that case in Pullen v Gutteridge, Haskins the decision was that the damage occurs when the inadequacy of the foundations is first known or with reasonable diligence becomes manifest.  So the legal principle that my learned friend wants to agitate, in my submission, is not open to any doubt and it is further complicated by, as I say, the disputed questions of fact.  Your Honours will have noted also that there is no legal controversy in the sense of there being any competing views of intermediate appellate courts.

Can I come back to your Honour Justice Kiefel’s question about whether there is an exception or a modification?  In my submission, when one tracks through – as the President did below – the cases are merely a development based upon the principle that started with Heyman.  Those are my submissions.

KIEFEL J:   Anything in reply, Mr Hodge.

MR HODGE:   Only one point, your Honour.  It was said that if the applicant’s case is that any observable defect is enough, then that is contrary to the earlier authorities, but that is not what the applicant’s case is.  The applicant’s case is the respondent has pleaded that a particular defect caused it loss and its evidence is that that particular defect existed more than six years before its proceeding was commenced.  Thank you, your Honours.

KIEFEL J:   The applicant seeks special leave to appeal from an interlocutory order refusing summary judgment on the basis that the determination of principle for which the plaintiff contends requires the finding of facts as to the manifestation of damage.  For these reasons we consider the application to be premature.  Special leave is refused with costs. 

The Court will now adjourn to reconstitute.

AT 12.20 PM THE MATTER WAS CONCLUDED