Moorabool Shire Council v Taitapanui

SUPREME COURT OF VICTORIA
COURT OF APPEAL

No. 5501 of 2003

MOORABOOL SHIRE COUNCIL & ANOR
	Appellants
v.
JUSTIN BRYAN TAITAPANUI AND LISA ANN TAITAPANUI and HIA INSURANCE SERVICES PTY LTD (trading as HOME OWNERS WARRANTY ) and WATSON CONSTRUCTION PTY LTD (In Liquidation)	First Respondent
	Second Respondent Third Respondent

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JUDGES:	MAXWELL, P., ORMISTON AND ASHLEY, JJ.A
WHERE HELD:	MELBOURNE
DATE OF HEARING:	10, 11 October 2005
DATE OF JUDGMENT:	24 February 2006
MEDIUM NEUTRAL CITATION:	[2006] VSCA 30

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Tort – Negligence – Duty of Care – Claim for pure economic loss – Surveyor exercising functions and duties under the Building Act 1993 – Issue of building permit with respect to erection of new premises – Want of reasonable care in issuing building permit – Purchase of property by claimants three years after premises constructed – Statement under s.32, Sale of Land Act 1962 – S.32(1A) – Particulars of building permit required – Copy of occupancy permit provided – Occupancy permit implying prior issue of building permit – Surveyor owed relevant duty of care to purchasers.

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APPEARANCES:	Counsel	Solicitors
For the Appellants	Dr C. Pannam, QC with Mr M.D. Wilson	Phillips Fox
For the First Respondent	Mr C.R. Northrop	Harwood Andrews
For the Second Respondent	Mr D.V. Aghion	Richmond & Bennison
For the Third Respondent	No appearance

MAXWELL, P.:

I have had the considerable advantage of reading in draft the joint reasons for judgment of Ormiston and Ashley JJA. I agree with their Honours that the appeal should be dismissed and, subject to what follows, I do so for the reasons which their Honours give.

The case was conducted, both at first instance and in this Court, on the basis that the result depended on the applicability – or otherwise – of the decision of the High Court in Bryan v Maloney (“Bryan”).[1] The applicability of that decision depended, in turn, on the views expressed by the High Court in its subsequent decision in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (“Woolcock”).[2] It was common ground on this appeal that Bryan is still good law and is binding on this Court.
[1](1995) 182 CLR 609 at 617 per Mason, C.J., Deane and Gaudron, JJ.
[2](2003) 216 CLR 515.

In my view, for the reasons which follow, the learned trial Judge was correct in holding that the decision in Bryan, and the principles on which it depends, as explained in Woolcock, led to the conclusion that the surveyor did owe a duty of care to the current owners, the Taitapanuis. As will be apparent, I take as my starting-point the statutory framework within which the surveyor carried out his work. The central importance of that framework as a “salient feature” is comprehensively explained in the joint judgment.

The law following Bryan v Maloney

Bryan concerned a duty of care owed by a builder of a house to a subsequent owner of the house to avoid pure economic loss. By majority,[3] the High Court held that the builder owed the subsequent owner a duty to take reasonable care in the construction of the house, and was liable to her in damages for an amount equal to the decrease in its value resulting from the inadequacy of the footings and its consequences. (I will refer to this type of economic loss as “diminution loss”).
[3]Mason, C.J., Deane, Toohey and Gaudron, JJ.

The steps in the reasoning in the joint judgment of Mason, C.J., Deane and Gaudron, JJ. in Bryan were as follows.

5.1 The categories of case in which the requisite relationship of proximity[4] with respect to pure economic loss is to be found are properly to be seen as special. Commonly, but not necessarily, these cases will involve an identified element of:
[4]The use of the term “proximity” is discussed below in paras [20]-[22].

(a) known reliance (or dependence); or

(b) the assumption of responsibility; or

(c) a combination of the two.[5]
[5]At 618-9.

5.2 The ordinary relationship between the builder of a house and the first owner, with respect to the kind of economic loss sustained when defects are discovered (diminution loss, as I have termed it), is characterised by the kind of assumption of responsibility on the one part (ie. by the builder) and known reliance on the other (ie. by the building owner) which commonly exists in the special categories of case in which a duty of care exists in respect of pure economic loss.[6]
[6]At 624.

5.3 At least prima facie, a relationship of proximity also exists between the builder and persons other than the first owner, including a subsequent owner, who might sustain physical injury to person or property as a consequence of a collapse of part of the house, as a result of defects.[7]
[7]ibid.

5.4 It is obviously foreseeable by the builder that the negligent construction of the house is likely to cause diminution loss to the owner of the house at the time when the defects first become manifest.[8]
[8]At 625.

5.5 When such economic loss is eventually sustained, and there is no intervening negligence or other causative event, the causal proximity between the loss and the builder’s lack of reasonable care is unextinguished by either lapse of time or change of ownership.[9]
[9]ibid.

5.6 The relationship between builder and subsequent owner with respect to this particular kind of economic loss is, like that between the builder and first owner, marked by the kind of assumption and responsibility and known reliance which is commonly present in the categories of case in which a relationship of proximity exists with respect to pure economic loss. That is –

(a) the builder undertakes the responsibility of erecting a structure on the basis that its footings are adequate to support it for a period during which it is likely that there will be one or more subsequent owners;

(b) such a subsequent owner will ordinarily have no greater, and often less, opportunity to inspect and test the footings than the first owner;

(c) such a subsequent owner is likely to be unskilled in building matters and inexperienced in the niceties of real property investment;

(d) accordingly, the builder should be aware that such a subsequent owner will be likely, if the defects have not become manifest, to assume that the house has been competently built.[10]

5.7 There is no basis in principle, policy or commonsense for distinguishing between physical injury sustained by a subsequent owner and economic loss sustained by a subsequent owner, by reason of the defective construction.[11]

[10]At 627.

[11]At 628.

Woolcock Street Investments

Like the present appeal, Bryan concerned a domestic building. By contrast, in Woolcock the High Court was concerned with a commercial building. The Court in that case distinguished Bryan in holding that the engineers who designed the building owed no duty of care to a subsequent purchaser of the building to avoid diminution loss. The decision in Woolcock did not, however, turn on the type of building involved.

In Woolcock, the engineers had designed foundations for a warehouse and offices. Some years after the building was completed, it was sold by the first owner to a third party. The contract for the sale of the land did not include any warranty that the building was free from defects, and there was no assignment by the vendor of any rights that the vendor might have had against others in respect of any such defects. More than a year after the subsequent owner bought the land, it became apparent that the building was suffering substantial structural distress, due to the settlement of the foundations of the building or the material below the foundations, or both.

By majority,[12] the High Court held that the engineers did not owe a duty of care to the subsequent purchaser to avoid diminution loss. The leading judgment –reflecting the views of a majority of the current members of the Court – was that of Gleeson CJ, Gummow, Hayne and Heydon JJ. According to their Honours, the conclusion in Bryan that the builder owed a duty of care to a subsequent owner to avoid pure economic loss –

“depended upon the anterior step of concluding that the builder owed the first owner a duty of care to avoid economic loss of that kind.”[13]

[12]Gleeson, CJ, McHugh, Gummow, Hayne, Callinan and Heydon, JJ, Kirby J dissenting.

[13]At 527 [14].

In their Honours’ view, the contention that the engineers owed a duty of care to the subsequent owner to avoid pure economic loss necessarily failed at this first, anterior, step. In contradistinction to the position in Bryan, the engineers in Woolcock did not owe such a duty to the original owner. The reasoning was as follows:

“[25] ...The relationship between [the engineer] and the original owner of the land was... not one in which the owner entrusted the design of the building to a builder, or in this case the engineer, under a simple, “non-detailed” contract. It was a relationship in which the original owner asserted control over the investigations which the engineer undertook for the purposes of performing its work.
[26] In its pleading the [subsequent owner] did not allege that the relationship between [the engineer] and the original owner was characterised by that assumption of responsibility by [the engineer], and known reliance by the original owner on the [engineer], which is referred to in the joint reasons in Bryan.”[14]

[14]At 531-2 [25]-[26], referring to Bryan (supra) at 624.

Central to the analysis of the relevant law in Woolcock was their Honours’ explanation of the concept of vulnerability.

“[23] Since Caltex Oil,[15] and most notably in Perre v Apand Pty Ltd,[16] 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.[17] 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,[18] 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,[19] 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.”[20]

[15]Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529.

[16](1999) 198 CLR 180.

[17]Stapleton, “Comparative Economic Loss: Lessons from Case-Law-Focused ‘Middle Theory’”, UCLA Law Review, vol 50 (2002) 531, at pp 558-559.

[18](1997) 188 CLR 159.

[19](1997) 188 CLR 241.

[20]At 530-1.

In Woolcock, their Honours held, there were no facts alleged or agreed[21] which showed that the subsequent owner –
[21]The proceeding in the Queensland Court of Appeal was by way of Case Stated.

“was, in any relevant sense, vulnerable to the economic consequences of any negligence of the [engineers] in their design of the foundations for the building.”[22]
[22]At 533 [31].

In particular, there was nothing to show that –

(a) the subsequent owner could not have protected itself – for example, by appropriate contractual provisions – against the economic loss it claimed to have suffered;[23] or

(b) the defects could not have been discovered through the making of appropriate investigations at or before the time of the purchase.[24]

[23]At [31].

[24]At [32].

As we have seen, the Court in Woolcock was able to distinguish the case before it from Bryan because of the non-existence of a duty of care owed by the builder to the original owner to avoid pure economic loss. This meant, their Honours said, that –

“the [Woolcock] case arises in a different factual context from that considered in Bryan and can be decided without determining whether doubt should now be cast upon the result at which the Court arrived in that case.”[25]

[25]At 534 [35].

The Court in Woolcock did take the opportunity to point out that proximity, which featured prominently in the reasoning in Bryan, was –

“no longer seen as the ‘conceptual determinant’ in this area.”

In their Honours view, it was the application in Bryan of this “conceptual determinant” of proximity that was –

“seen as both permitting and requiring the equation of the duty owed to the first owner with the duty owed to the subsequent purchaser.”[26]

[26]At 528 [18].

At the same time, the decision in Woolcock reaffirms the fundamental point that the character of the relationship between the plaintiff and the defendant is critical to any analysis of duty of care to prevent pure economic loss. Specifically, the joint judgment referred with approval to the approach adopted by Stephen J in Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’[27]:

“In Caltex Oil, Stephen J isolated a number of ‘salient features’ which combined to constitute a sufficiently close relationship to give rise to a duty of care owed to Caltex for breach of which it might recover its purely economic loss.[28] Chief among those features was the defendant’s knowledge that to damage the pipeline which was damaged was inherently likely to produce economic loss.”[29]

[27](1976) 136 CLR 529.

[28]ibid at 576-8.

[29]Woolcock at 530 [22] (emphasis added).

This passage appears to reflect the adoption, by a majority of the present High Court, of the “sufficiently close relationship” test which had been developed by Gummow J in a series of cases which preceded Woolcock, each of which was cited in support of this passage in Woolcock.[30] The first of those cases was Hill v Van Erp,[31] in which Gummow J said:

“Not only the foreseeability of harm to [the plaintiff]... but a complex of other factors combined to summon into existence a duty of care owed by [the solicitor] to [the beneficiary]...”[32]

One of the factors identified by Gummow J was the control which the solicitor exercised “as a practical matter” over the realisation by the testatrix of her testamentary intentions towards the plaintiff.[33]

[30]See at 530 footnote 90.

[31](1997) 188 CLR 159.

[32]At 234.

[33]ibid.

The significance of control as a factor came into much sharper relief in his Honour’s judgment in the second case cited in Woolcock. In Pyrenees Shire Council v Day,[34] the building inspector employed by the Shire Council had identified a fire risk in certain premises, but the Shire failed to ensure that the risk was removed. A fire broke out and neighbouring premises were damaged. The majority of the High Court[35] held that the Shire owed a duty of care to the owners of the adjacent property to take reasonable care to prevent the kind of economic loss which they had suffered. As Ormiston and Ashley JJA point out, Gummow J regarded it as of particular significance that the Shire had –

“a significant and special measure of control over the safety from fire of persons and property in [that] street. Such a situation of control is indicative of a duty of care.[36] The Shire had statutory powers, exercisable from time to time, to pursue the prevention of fire at [the premises]. This statutory enablement of the Shire ‘facilitate[d] the existence of a common law duty of care,’[37] but the touchstone of what I would hold to be its duty was the Shire’s measure of control of the situation, including its knowledge, not shared by [the plaintiffs], that, if the situation were not remedied, the possibility of fire was great and damage to the whole row of shops might ensue.”[38]

[34](1998) 192 CLR 330.

[35]Toohey, McHugh, Gummow and Kirby JJ.

[36]His Honour here referred to Howard v Jarvis (1958) 98 CLR 177 at 183; Parramatta City Council v Lutz (1988) 12 NSWLR 293 at 328; Hawkins v Clayton (1988) 164 CLR 539 at 553; Bennett v Minister of Community Welfare (1992) 176 CLR 408 at 427; Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 at 556-557; Hill v Van Erp (1997) 188 CLR 159 at 198-199, 234.

[37]His Honour referred to Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 460.

[38]192 CLR 330 at 389 [168] (emphasis added).

His Honour adopted a similar approach in the third case cited in Woolcock. In Perre v Apand Pty Ltd,[39] Apand had supplied seed for use by potato growers. In doing so it negligently introduced a form of potato disease on to the land of a particular grower. The plaintiffs suffered economic loss because of the proximity of their potato growing operations to the infected land.
[39](1999) 198 CLR 180.

By majority,[40] the High Court held that Apand owed a duty of care to the plaintiffs (Perre). In his judgment, Gummow J said the question was:

“...whether the salient features of the matter gave rise to a duty of care owed by Apand. In determining whether the relationship is so close that the duty of care arises, attention is to be paid to the particular connections between the parties.
...There is no simple formula which can mask the necessity for examination of the particular facts.”[41]

It was here that his Honour signified – by reference to Van Erp and Pyrenees – his adoption of the “sufficiently close relationship” test, based on the approach taken by Stephen J in Caltex Oil.[42]

[40]Gleeson CJ, Gaudron, McHugh, Gummow, Kirby and Callinan JJ.

[41]At 253 [198] (emphasis added).

[42]At 254 [201].

Amongst the “salient features” of the case was the control exercised by Apand:

“[215]...As a practical matter, Apand was in control of the initiation and conduct of the experimental activities using the [neighbouring] property. Apand both selected and supplied the seed and chose the location for the experiment.
[216] The Perres had no way of appreciating the existence of the risks to which they were exposed by the conduct of the Apand experiment and no avenue to protect themselves against that risk. ... Here the relevant risk to the commercial interests of the appellants was in the exclusive control of Apand. Its measure of control was at least as great as that of the Shire in Pyrenees. The effect of the [relevant] legislation [was that]... the economic loss would flow directly and inevitably and the possibility of its occurrence would not be speculative.
[217] The characteristics of the present case... combined... to bring the Perres and Apand into such close and direct relations as to give rise to a duty of care owed by Apand for breach of which purely economic loss may be recovered.”[43]

[43]At 259-260 [215]-[217] (emphasis added).

In Hill v Van Erp, Gummow J adverted to what he regarded as –

“real difficulty in treating the requirement of a relationship of proximity as an overriding requirement which provides the conceptual determinant... for the recognition of an existence of a duty to take reasonable care to avoid a reasonably foreseeable risk of injury.” [44]
[44]At 238.

Nevertheless, his Honour acknowledged, the notion of proximity might provide –

“a unifying theme for various categories of case, the genus of which they are species.”

By way of example, his Honour referred to Burnie Port Authority v General Jones Pty Ltd[45] and to Bryan v Maloney as each providing –

“authority for a distinct species of negligence. The first [Burnie] is concerned with a person who takes advantage of the control of premises to introduce a dangerous substance, to carry on a dangerous activity, or to allow another to do one of those things. The second [Bryan] deals with the duty of a builder to a subsequent owner as regards diminution in value of the structure when the inadequacy thereof first becomes manifest by reason of consequent damage to its fabric. Each species displays a particular manifestation of the notion of a relationship of proximity. But, by itself, the notion of proximity, used as a legal norm, has the uncertainties and perils of a category of indeterminate reference, used with shifting meanings to mask no more than policy preferences.”[46]

[45](1994) 179 CLR 520.

[46]188 CLR 159 at 238 (emphasis added).

As we have seen, the majority in Woolcock has confirmed that proximity is no longer to be regarded as the “conceptual determinant”. At the same time, by adopting the “sufficiently close relationship” test as developed by Gummow J, the members of the majority have made clear that it is both proper and necessary to ask, by reference to the facts of the particular case, whether the relationship is of sufficient closeness to give rise to a duty of care. An affirmative answer to that question would, it seems, justify describing the case at hand as exemplifying a “distinct species of negligence”, displaying “a particular manifestation of the notion of a relationship of proximity.”

Against that background, I turn to consider the “salient features” of the present case.

The “salient features” of the present case

The first point to note is that no issue arises in the present case about what the High Court in Woolcock referred to as the “anterior step”. That is, the Council – and its employee, the surveyor – owed the first owner a duty of care to avoid pure economic loss. So much was conceded – quite properly – by the Council on the appeal. (Both the Tribunal and the learned Judge addressed the anterior step substantively, and concluded that the duty existed.[47])
[47]Reasons for judgment [32], [48].

Nor is there anything in the decision in Woolcock to suggest that the class of case – the “species of negligence” – represented by the decision in Bryan could not, as a matter of principle, have encompassed an engineer just as much as a builder. On the contrary, the discussion in Woolcock of the “anterior step”, and of the concept of vulnerability, seems to have assumed without question that an engineer – like a builder – could owe a duty of care to the first owner and – potentially, at least – to a subsequent owner, to avoid pure economic loss.[48]
[48]See, for example, Woolcock at [25]-[27]; [28] – “in considering what duty a builder or engineer owed others”; [31]-[32].

In my view, there is nothing in the reasoning in Woolcock or in Bryan, nor is there any consideration of principle or policy, which would require or justify the a priori exclusion of a surveyor from the same class of case. After all, the surveyor – like the builder and the engineer – has a responsibility to the first owner to take reasonable care to ensure that the house as constructed complies with all applicable building regulations. As I have said, the existence of that duty is not in issue on this appeal.

According to the High Court in Woolcock –

“...the principles that were said to be engaged in Bryan... depended upon considerations of assumption of responsibility, reliance, and proximity. Most importantly, they depended upon equating the responsibilities which the builder owed to the first owner with those owed to a subsequent owner.”[49]

It would seem to follow that there is, implicit in the Council’s concession that the surveyor owed a duty of care to the first owner, the acknowledgment that – like Bryan and unlike Woolcock – there was as between the surveyor and the first owner “an identified element of known reliance/or dependence” and/or “the assumption of responsibility”.[50]

[49]Woolcock at [15].

[50]Woolcock at [26], quoting Bryan at 619.

I now turn to consider whether, in the present case, the responsibilities which the surveyor owed to the first owner can be equated with those owed to the current owners. It is necessary in the present case to determine whether the relationship which exists between a surveyor and a subsequent owner possesses the requisite degree of closeness[51] to give rise to a duty on the part of the surveyor to take reasonable care to avoid the kind of economic loss sustained by the Taitapanuis in the present case.[52]
[51]The word used in Bryan was “proximity”.
[52]Bryan at 625.

In my opinion, the indicia of “closeness” which were present in Bryan – as between builder and subsequent owner – are also present in this case, as between surveyor and subsequent owner. I deal with those features in the same order, and in the same language, as appears in Bryan.

28.1 Although the only connection between the surveyor and the current owners is the house itself, that connecting link is a substantial one, for the reasons given in Bryan. That is, the house –

“is a permanent structure to be used indefinitely and, in this country, is likely to represent one of the most significant, and possibly the most significant, investment which the subsequent owner will make during his or her lifetime.”[53]
[53]ibid.

The majority in Woolcock referred to this aspect of Bryan, noting only that in Woolcock - “if it be relevant” – the subsequent purchaser had advanced neither fact nor argument to show that the commercial building in issue was an investment of any special significance to it.[54]
[54]Woolcock at [33].

28.2 It was obviously foreseeable by the surveyor that the negligent inspection and certification of the house was likely to cause economic loss, of the kind sustained by the current owners, at the time when the defects first become apparent.

28.3 When such economic loss was eventually sustained, then – given that there was no intervening negligence or other causative event – the causal proximity between the loss and the surveyor’s lack of reasonable care was unextinguished by either lapse of time or change of ownership.[55]

[55]cf. Bryan at 625.

Moreover, in my view, the relationship between the surveyor and the current owners with respect to diminution loss is –

“... like that between the [surveyor] and the first owner, marked by the kind of assumption of responsibility and known reliance which is commonly present in the categories of case in which a relationship of proximity exists with respect to pure economic loss.”[56]

[56]Bryan at 627.

I agree with the learned Judge that there is no relevant disconformity between the obligations arising out of the surveyor’s relationship with the first owner and those which arise in relation to the current owners.[57] Again adapting the language of Bryan,[58] it seems to me that in a case such as this the following propositions are uncontroversial.
[57]Reasons [111], [114].
[58]ibid.

30.1. In ordinary circumstances, the surveyor undertakes the responsibility of inspecting the house in the knowledge that the presence or absence of defects will be relevant to the soundness and safety of the house “for a period during which it is likely that there will be one or more subsequent owners”.[59]
[59]ibid.

30.2 Such a subsequent owner will ordinarily have no greater, and will often have less, opportunity to inspect and test the soundness of the house than the first owner.

30.3 Such a subsequent owner is likely to be unskilled in building matters and inexperienced in the niceties of real property investment.

30.4 Any surveyor should be aware that such a subsequent owner will be likely, if the defects have not become apparent, to assume that the house has been certified as built in compliance with the building regulations and, accordingly, that there are no defects.

Other considerations point in the same direction. Take the important element of control, to which reference has already been made. Obviously enough, the surveyor (and therefore the Council) have complete control over the discharge of the statutory functions of granting the necessary permits. Like the first owner, the subsequent owner is completely powerless to influence that process.

True it is that a subsequent purchaser could arrange, at its own expense, for detailed inspections and investigations. As the present appellants point out, it was not disputed that pre-purchase building inspection reports were available had the current owners sought to commission one. Equally, as the joint judgment of Ormiston and Ashley JJA makes clear, no finding of fact was made that the carrying out of such an inspection would have disclosed the critical defects.[60]
[60]Paragraphs [167]-[168].

If it were correct, this “self-protection” argument would apply with equal force to the position of the first owner, who could always arrange an independent inspection to make sure that the house was free of defects. It was not suggested in Bryan or in Woolcock that the ability to procure such an inspection negated the duty of care owed by the builder to the first owner. Nor was it suggested by the appellants in the present case that the availability of such inspections negated the duty of care owed by the surveyor to the first owner. That being so, I see no reason why the theoretical possibility of self-protection (by independent inspection) should be held to negate the surveyor’s duty to a subsequent owner.

Once it is concluded that the relationship between surveyor and subsequent owner is characterised by assumption of responsibility and known reliance (or dependence), it is difficult to accept the contention that the availability of private building inspection services negates the existence of a duty of care. Either the subsequent owner is dependent on the surveyor, or (as in Woolcock) it is not. Although the analogy is far from perfect, this contention – if it were right – would seem to mean that no duty of care existed between lawyer (or accountant) and client because it is always open to the client to check the accuracy of the advice given by seeking a second opinion. Whether a subsequent owner could, and should, have obtained its own pre-purchase inspection, and whether that inspection would have revealed the relevant defects, seem to me to be questions which properly relate to causation and contributory negligence, rather than to the existence of the duty of care.

As suggested by the majority in Woolcock,[61] the factor of known or likely reliance may best be understood as constituting, or signifying, vulnerability. Here, as the defendant surveyor knows, the owners (first and subsequent) of the house will rely – or will necessarily be dependent – on the building inspections having been done with reasonable care. Each owner is vulnerable to any failure on the part of the defendant to take such care. It may be for this reason that a comparable duty of care will not be held to arise with respect to the owners of commercial buildings, because – as the particular facts of Woolcock demonstrate – a commercial party involved with the buying and selling of commercial property may be assumed to be self-reliant in this regard. That class of case would therefore be distinguished from the present by the lack of any known reliance/dependence. No such question arises on the present appeal.
[61]At [24].

The element of control is part of the same vulnerability analysis. That is, it is precisely because the defendant was in control of the discharge of the relevant statutory functions (as in Pyrenees), of the relevant experimental seed production (as in Perre), and of the execution of instructions to prepare a will (as in Van Erp), that the plaintiff in each of those cases – lacking that control – was vulnerable to the consequences of a lack of care on the part of the party in control. So too the current owners in the present case were vulnerable to the consequences of a lack of care on the part of the surveyor.

No actual reliance

In arguing that no duty of care arose, the appellants relied heavily on the lack of evidence from the current owners that they relied on – or even knew of – the surveyor’s work. It may readily be accepted that there was no such reliance, though the role evidently played by the solicitors for the current owners should not be overlooked, as Ormiston and Ashley JJA explain.

As the Tribunal itself observed,[62] there can, of course, be vulnerability – and duty of care – without actual, conscious, reliance on the part of the plaintiff. In Pyrenees, in the course of rejecting as unsound the “general reliance” doctrine earlier espoused by Mason J, Gummow J said:

“... As Hill v Van Erp recently illustrated, reliance is not always an essential requirement for the plaintiff in a negligence case. The primary significance of reliance is in cases of alleged negligent provision of advice or information where reliance aids the formulation of a duty of care and detrimental reliance enters into the question of causation of loss.”[63]

[62]Reasons for judgment [46].

[63]192 CLR 330 at 385-6 [158].

In Pyrenees, the plaintiffs had not relied upon the Shire to take any action. They were ignorant of the need for something to be done about the fire risk, their ignorance itself being –

“the product of the incomplete and inadequate course of action taken by the Shire after the first fire.”[64]
[64]At 390 [170].

Likewise in Hill v Van Erp, the intended beneficiary –

“did not assert in her favour any identified element of known reliance or dependence by her upon the discharge by [the solicitor] of her professional obligations in seeing to the execution of [the] will. ... [Nor does the evidence] disclose, in any specific sense, any assumption of responsibility by [the solicitor] other than to her client.”[65]

Nevertheless, for reasons already referred to, Gummow J held that the solicitor owed a duty of care to the intended beneficiary.

[65]188 CLR 159 at 230.

In the same case, Dawson J, with whom Toohey J agreed, employed slightly different reasoning – itself directly relevant to the present case – in arriving at the same result. His Honour said:

“The requirements of an assumption of responsibility and the element of reliance... are a means by which the law seeks to avoid undesirable consequences such as indeterminate liability, the destruction of legitimate commercial competition, or the emasculation of other bodies of legal doctrine. Where there is no threat of those undesirable consequences, the assumption of responsibility by a defendant and reliance, or request, by a plaintiff may suggest policy reasons for recognising the existence of a duty of care, although they may not be determinative. Indeed, the element of reliance may be unhelpful as an indication of a relationship of proximity in cases of economic loss which do not involve misstatement.”[66]

[66]188 CLR at 184, citing San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 355.

Van Erp was not a case of negligent misstatement. Nevertheless, in the view of Dawson J, in cases such as Van Erp –

“... there is both an assumption of responsibility of a kind, and reliance of a kind, which at least on grounds of policy suggests that a relationship of proximity might be recognised even though neither is in a form which would suffice in cases where those elements are crucial to a relationship of proximity.”[67]
His Honour continued:
“... Whilst there will usually be no specific reliance by an intended beneficiary upon a solicitor retained to attend to the will, the intended beneficiary’s interests are totally and unavoidably dependent upon the proper performance of a function within the sole province of the solicitor. And, it might be added, in that situation the solicitor knows of the beneficiary’s dependence and in that respect may be regarded as having assumed responsibility towards the intended beneficiary.”[68]

[67]At 184-5.

[68]At 186.

Although these last remarks were made with reference to the notion of “general reliance or dependence”, as described by Mason J in Sutherland Shire Council v Heyman,[69] what Dawson J said about dependence and assumption of responsibility was undoubtedly true, independently of any such overarching notion. Moreover, in my opinion, what his Honour said about the relationship between the intended beneficiary and the solicitor has obvious parallels in the case of surveyor and subsequent owner. As I have already indicated, it seems to me that the present case is characterised by both the known, inevitable, dependence of each subsequent owner upon the proper performance of the surveyor’s function, and the assumption of responsibility by the surveyor, in accordance with his statutory duties, to ensure that the house as constructed complied with the building regulations.
[69](1985) 157 CLR 424 at 464.

It may be that this was – to use Dawson J’s phrase – no more than “an assumption of responsibility of a kind, and reliance of a kind,” and that it would not suffice were this a negligent misstatement case. But it is not. It is a case of negligent conduct, negligent execution of tasks, negligent performance of duties, just as Bryan was.

Conclusion

For these additional reasons, the appeal should in my opinion be dismissed. It is important to say in conclusion that I do not regard this case as involving any significant new development in this area of the law. On the contrary, it involves exactly the kind of analogous or incremental development which is the hallmark of the common law in general and of this area of law in particular. As I have sought to demonstrate, the conclusion here arrived at is an application, by analogy, of the law as clearly enunciated in Bryan and Woolcock. It is part of the very “species of negligence” which those cases define.

Both the Tribunal and the learned Judge gave full and careful reasons for arriving at the conclusion that a duty of care existed. Both paid close attention to applicable High Court authority and, in particular, both identified and analysed the “salient features” of the relationship between surveyor and subsequent owner. Having endeavoured to do the same, this Court has reached the same conclusion.

The appellants would have it that to apply the Bryan/Woolcock reasoning to a surveyor represents “impermissible judicial legislation”, and that such a step could only be taken – if at all – by the High Court. For the reasons I have given, I disagree. The decisions arrived at in this case – first by the Tribunal and then by the learned Judge – are examples – fine examples – of the time-honoured approach of applying to particular facts general principles laid down by the High Court. This is of course the only possible approach. Otherwise the wheels of justice will grind to a halt, and the common law will ossify.

ORMISTON, J.A.:
ASHLEY, J.A.:

This appeal raises an issue concerning liability in negligence for pure economic loss caused by the collapse of part of the foundations of a house (and for other consequential damage). The property had been purchased by the first respondents, Justin and Lisa Taitapanui (“the Taitapanuis”). They claimed that the loss resulted from breaches of duty owed to them as subsequent purchasers in respect of the careless and incompetent performance by the second appellant, Wally Mellis (“Mellis” or “the surveyor”) of his functions as a building surveyor engaged by the builder of the house on behalf of the property owners some three years earlier. They claimed further that the first appellant, Moorabool Shire Council (“Moorabool”), was vicariously liable as the surveyor’s employer.

The claim was brought in the relevant statutorily invested jurisdiction of the Victorian Civil and Administrative Appeals Tribunal. It led to orders in favour of the Taitapanuis against the appellants, and also against HIA Insurance Services Pty Ltd trading as Home Owners Warranty (“HIA”). HIA had been the insurer of the builder.[70]
[70]In consequence of a proportionate liability order made by the Tribunal, which order the appellants sought to challenge, HIA was made a respondent to the appeal to the Trial Division. It was also named as a respondent to the present appeal. But the challenge to the Tribunal’s resolution of the proportionate liability question was not pursued in this Court. Counsel for HIA nonetheless appeared, and made a number of useful submissions directed to the key issue on the appeal.

By leave, the surveyor and the council appealed to the Trial Division of the Supreme Court raising two questions of law, one of which was directed to the issue whether the appellants owed a duty of care to the Taitapanuis. The appeal was dismissed by Smith, J. on 1 July 2004 and from that decision, directed only to that first question of law, Moorabool and Mellis have appealed, again by leave, to this Court. The essence of their grounds of appeal is that they seek to have the judge’s and the Tribunal’s decision overturned on the ground that neither of them owed any duty of care to the Taitapanuis.

The facts leading to the proceeding and this appeal may be summarised as follows. At the time the relevant damage became evident, which was in 1999, the Taitapanuis were the registered proprietors of a property at Torquay in the Surf Coast Shire (“Surf Coast”), on which was erected a house. The house had been constructed some three years earlier, at a time when Stephen John Watson and Leanne Joy Watson (“the Watsons”) had owned the property.[71] Stephen Watson (“Watson”) was also a registered building practitioner and a director of Watson Constructions Pty. Ltd. (“Constructions”). The company, in substance, was Watson’s alter ego.
[71]Subject only to an issue concerning the date upon which they took a transfer of title from the original sub-divider; as to which, see below.

On 21 August 1996 Watson applied to Mellis for a building permit for a two-storey residence estimated to be worth $112,000. We note that the application form was prescribed[72], but that, although directed to Mellis, it contained Moorabool’s insignia, whilst the address of that entity and other of its details appeared at the foot of the form.
[72]Under the Building Regulations 1994, SR 81/1994.

It seems that on the previous day, pursuant to s.80 of the Building Act 1993 (“the Act”), Mellis had notified Surf Coast that he had been appointed as the private building surveyor for the house’s construction.[73] In any event, on the very same day as the application for a permit was made, a building permit was in fact issued to “Stephen Watson” which had attached to it a number of plans of the proposed dwelling. The permit, again in the form prescribed by the Regulations, did not directly contain a heading relating to Moorabool, but gave its new telephone number at the top. At the foot of the document the name of the “relevant building surveyor” was given as Mellis, with his registration number, but immediately below there appeared the following, in capitals:

“Business Council name: Moorabool Shire Council, P.O. Box 18, Ballan 3342.”

$805 was paid by way of fee and a receipt was given, seemingly by Moorabool, for there appears to be no reference to the surveyor on the receipt.

[73]We have not been able to trace the document which effectuated that appointment. The statement appears in the detailed reasons of Mr R.J. Young constituting the Victorian Civil and Administrative Tribunal in para.3.26 but he notes also that the document nevertheless was under Moorabool’s letterhead.

Later in 1996, Constructions built the house. On 28 January 1997 Mellis issued an occupancy permit in the form prescribed by the Regulations. It contained a heading and an endorsement at the bottom which referred to Moorabool. The document was signed by Mellis. It stated that the “relevant building surveyor” was “Wally Mellis M.B.S.”, and that his postal address was Moorabool’s P.O. Box.[74]
[74]Notification was also given by Mellis to Surf Coast on 28 January 1997 as to the dates of approval of the stump holes, frame and “final” stage. The last-mentioned was stated as being 22 January 1997.

We pause for a moment to make four observations. First, documents to which we have referred mentioned Moorabool and Mellis in somewhat indiscriminate fashion. But the case was conducted on the basis that Mellis was the appointed surveyor, and that Moorabool was his day to day employer; in which circumstances Moorabool was vicariously liable for any negligent acts or omissions on Mellis’ part in his role as surveyor in respect of the premises built by Constructions.

Second, there was uncertainty at trial as to the precise identity of the builder – that is, whether it had been Watson or Constructions. The Tribunal gave close consideration to the evidence bearing upon the identity of the builder. It concluded that “the most likely identity of the builder was” Constructions. Again, at one point in its reasons it seems to have treated Watson, rather than the Watsons, as being the “building owner.” But later it said that by the “building owner” it meant “the owner of the subject property at the time that the dwelling was erected.” Whilst Watson at times identified himself as the owner[75], in light of the evidence that the Watsons were the purchasers from Great Ocean Views Pty Ltd, [76] and that they eventually took title, Watson must in fact have been acting as agent for him and his wife when he identified himself as the owner. The logic of the Tribunal’s reasons is that the Watsons were to be regarded as the owners.
[75]For instance, on the application for a building permit.
[76]It had sold the land to the Watsons by contract dated 7 March 1996. The Transfer was dated 25 November 1996, and stamp duty was apparently paid that day.

Third, in piecing together the factual picture, so far as it pertained to the relationship between Mellis and Moorabool, the identity of the owner and builder, and the relationship between Mellis, Moorabool, the owner and the builder, the Tribunal was unassisted by any evidence of Watson, Mrs Watson, Mellis or a representative of Moorabool. Even if findings which the Tribunal made could be challenged, a court would be very reluctant to impugn such findings in the circumstances described.

Fourth, the appeal to the Supreme Court was brought pursuant to section 148(1) of the Victorian Civil and Administrative Tribunal Act 1998. Such an appeal, by leave, is only available on a question of law. A question whether there was any evidence to support a particular finding is a question of law. But no such question was raised by the appellants. So the relevant findings of the Tribunal are not open to debate.

We return to the chronology.

In about July 1997 the Watsons sold the property to Kathleen and Joseph Pozman (“the Pozmans”) and in due course they became the registered proprietors of the property. Early in 1999 the Pozmans entered into a contract of sale with the Taitapanuis for the latter to purchase the property, and in about May 1999 the Taitapanuis became registered owners thereof.

According to the evidence, in the period preceding purchase of the property by the Taitapanuis no defects, certainly none of a significant kind, were apparent either to the Pozmans or the Taitapanuis. It was only after the Taitapanuis had bought the house that they saw certain defects.

It is convenient to mention immediately something of the scale of the problems encountered by the Taitapanuis. They first noticed water leaking from the extremities of their ensuite shower recess, this leading to the lifting of certain tiles. According to the Tribunal, certain tradesmen who attended to rectify that problem, and a leaking dishwasher, also noticed substantial non-conforming plumbing works. By September 1999 there was a major entry of water above the French doors in the main bedroom, water was forming pools on a balcony and tiles in the kitchen were lifting. Then, towards the end of the year, significant quantities of water started entering into the downstairs meal, living and kitchen areas from the balcony and upstairs area.

At the outset, the Taitapanuis asked the builder to rectify the observed problems. At the same time they approached HIA – which had insured Constructions in respect of the building work as required by s. 135 of the Act.

The Taitapanuis also had an inspection made by another building surveyor, Raymond Hamill. He in turn obtained an opinion from a structural engineer. It identified a number of serious structural deficiencies in the footings. The Taitapanuis were advised that the wrong footing system had been installed, and that it could not support the external walls. They were also advised that the footing system was contrary to the requirements stated in the CSR user’s guide, which said that a reinforced concrete strip footing was the minimum required by the relevant Australian standard for masonry veneer where the soil was class H – as was here the situation. The wholly unsuitable footings had resulted in excessive settling of a number of stumps, as well as defects in the structural support for the garage.

It seems that the house had been built on land with a considerable slope. There was a significant uphill catchment area potentially causing an overland flow towards and through the house site. Either Watson or his company had prepared the plans and the design for the foundations. Those documents had been submitted to Mellis together with the application for a building permit. The house as planned and built was of two storeys. Its footings consisting of a stump and pad system. The external walls were clad with what is called CSR “Power Panel,” which consisted of a 75 mm. reinforced panel made from “Hebel” autoclaved aerated concrete. The power panels were placed as a veneer over the wooden frame. Internally, the frame was lined with conventional plasterboard. The prime difficulty with the construction, as it was proposed and as it was effected, was that the relevant Australian standard (AS 2870.1/1988) did not permit masonry veneer to be installed where the footings were to be constructed of a stump and pad design.

It was accepted at the Tribunal that the plans and other documents submitted to Mellis with the application for the building permit were inadequate in a considerable number of respects, in particular because the footings as specified were of stump and pad design. The Tribunal held that Mellis had been in substantial default by issuing the permit. That default arose in the first place because, contrary to the Regulations, no specifications had been provided describing the materials and methods to be used. Moreover, the plans did not identify the particular external wall material, although it did show a wall thickness of 250 mm. which ought to have alerted Mellis to the likelihood that masonry product would be used. So the Tribunal held that Mellis had failed in his basic functions of ensuring that the application contained sufficient information to ensure compliance with the Regulations. It described his conduct as amounting to “gross carelessness and incompetence”[77]. The learned judge in the Trial Division said the Tribunal was clearly justified in saying that the plans were “completely inadequate and [appeared] in effect to have been done by a thumbnail dipped in tar”. The Tribunal also noted that some 20 other construction defects had been identified, most of which Mellis should have picked up in the course of his inspection - in particular, subfloor defects in the bearers and joists, defects in the roof framing, clear shortcomings in the flashings and a failure to provide the correct safety glass for certain window and door panels.
[77]Paras 3.50 of the Member’s reasons.

The advice given by a building consultant, Perry Setford, to the Taitapanuis – confirming the opinions of Messrs Hamill and Evans as to the essential cause of the problems - was that the structure was “so compromised by the wrong type of footing system that it was cheaper to demolish and rebuild rather than try to rectify the inadequacies.” On the other hand, an expert engaged by the insurer, Mr Browning, considered that demolition might be unnecessary. But he agreed that rectification would be very costly, and that a replacement veneer which he suggested might be used would breach a restrictive covenant. According to the Tribunal, all parties accepted that there were very serious deficiencies, the most significant being in the footings, and all agreed that the use of stumps had resulted in an unacceptable deformation in the power panel wall, leading to cracking of joints and deterioration of the panels themselves. This was likely to worsen. It had been accompanied by a large amount of water penetration.

The Tribunal concluded that –

“To satisfactorily rectify the house so that it complies with the Act and Regulations and the restrictive covenant, I consider that it needs to be demolished and rebuilt.”

It should be added, as might be expected, that the Taitapanuis did not themselves consciously rely on anything that Mellis or Moorabool said or did when purchasing the property. But they did take the conventional steps of dealing with a firm of estate agents whom they thought were very reputable and a firm of solicitors who they believed to be highly respected. Otherwise they optimistically took the view that the acquisition of the house might be a “bonus” because the original builder had lived in it. They were sadly mistaken.

Whether or not the Taitapanuis were right to have taken comfort from the role of the builder as both builder and initial occupier, it was of little practical consequence, as the builder was by then in liquidation. Their legal advisers understandably considered that it was necessary for them to bring proceedings in the Tribunal against not only the builder (for what that might be worth) but also against Mellis, Moorabool and the insurer. The Tribunal hearing extended for more than a week. It led to a decision on 8 April 2003 in favour of the Taitapanuis. The Tribunal ordered that HIA pay them $116,789.70, that sum including interest. The Tribunal also ordered that Moorabool and Mellis pay them $119,051.92, that sum including interest. No order was made against Constructions, since HIA was indemnifying the builder’s proportionate liability to the Taitapanuis.

The developing law as to liability in tort for pure economic loss

Over the past 30 years, there has been recurrent, intensive, consideration – at the highest judicial levels in Australia and elsewhere – of the circumstances in which a duty of care will arise to avoid causing pure economic loss. No occasion arises in this appeal to rehearse at any length the chain of case law through which the principles have been developed and refined. It is sufficient for present purposes if we identify what appear to us to be pertinent considerations, as the law now stands in Australia.

The categories of case in which a duty of care with respect to pure economic loss is to be found are properly to be seen as special. Foreseeability of loss, and an unbroken chain of causation, are necessary elements, but by themselves are not sufficient. An additional element which must be present has been variously described as involving one or more of known reliance or dependence of the plaintiff; the assumption of responsibility by the defendant; or the control exercised, or exercisable, by the defendant over the circumstances affecting the plaintiff’s interests. What ultimately determines whether a duty of care arises is the character of the relationship between the plaintiff and the defendant. Matters such as those which we have just mentioned, and others, bear upon the resolution of that question in the particular circumstances of particular cases; though not all of those matters will be at the forefront in every case. The question to be answered is whether, having regard to the salient features of the particular case, the connection between the parties is sufficiently close – though not necessarily physically close – as to give rise to a duty of care. When the defendant’s acts or omissions arise in connection with the discharge of statutory duties or the performance of statutory functions, the statutory framework is itself a salient feature to which consideration must be given.

To those considerations should be added the following: Three policy considerations are pertinent in every case. First, that the effect of a decision should not lay a defendant open to claims which are indeterminate as to the class or number of potential claimants, time or amount. Second, that the effect of a decision should not be to unduly hinder ordinary commercial transactions (or, be inconsistent with normal business standards). Third, that a decision should not have the effect of intruding into another area of the law.

Also to be borne in mind is the fact that the pertinent law has been developed cautiously, incrementally, and by analogy. So, for example, in Perre v Apand Pty Ltd[78] McHugh J said this:

“We have the established categories, a considerable body of case law and the useful concept of reasonable foreseeability. If a case falls outside an established category, but the defendant should reasonably have foreseen that its conduct would cause harm to the plaintiff, we have only to ask whether the reasons that called for or denied a duty in other (usually similar) cases require the imposition of a duty in the instant case.”

[78](1999) 198 CLR 180 at 216 [93].

In the present case, for reasons which follow, we regard the statutory scheme, and the obligations which it imposed on a surveyor in Mellis’ position, as of central significance. It is, therefore, appropriate to refer in a little more detail to the role which this “salient feature” properly plays in the duty of care analysis.

Cases of breach of statutory duty apart, the statute does not by itself give rise to a civil right of action. Instead, the statute –

“forms the foundation on which the common law can build a cause of action.”[79]

Thus, in Heyman, Mason J referred to –

“situations in which an authority’s occupation of premises or its ownership or control of a structure in a highway or of a public place attracts to it a duty of care. In these cases the statute facilitates the existence of a common law duty of care.”[80]

[79]Scott v Green [1969] 1 WLR 301 at 304 per Lord Denning MR, cited with approval by Mason J in Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 460.

[80]At 460.

Given factual differences which determined an outcome unfavourable to the purchasers in that case (of which we shall later say more) Heyman raised conceptual issues which bear upon resolution of the present case. It concerned a structural defect in a house, caused by the subsidence of inadequate footings. The Shire Council had approved plans and issued a building permit, and had caused its officers to inspect the house when it was under construction. The plaintiff purchased the house some years later, and it was only after the purchase that the defects appeared for the first time. The plaintiff sued the Council claiming damages for negligent inspection by its officers in the course of erection of the premises.

Gibbs CJ said:

“To enable an answer to be given to the question whether the Council owed a duty of care to the [plaintiff], it is first necessary to consider its relevant statutory powers and duties.”[81]

Having done so, his Honour concluded that the powers conferred by the relevant legislation –

“were intended to ensure that buildings are properly constructed in the interests of health and safety and, I should think, also in the interest of achieving or maintaining a standard of building appropriate to the municipality or area of the municipality concerned.”[82]

[81]At 432.

[82]At 447.

More recently, in Pyrenees Shire Council v Day,[83] the scope of the Council’s relevant statutory functions was central to the Court’s conclusion that the Council owed a duty of care at common law. Thus, Gummow J said:

“A public authority which enters upon the exercise of statutory powers with respect to a particular subject-matter may place itself in a relationship to others which imports a common law duty to take care which is to be discharged by the continuation or additional exercise of those powers.”[84]

[83](1998) 192 CLR 330.

[84]At 391-2 [177].

In the particular case, Gummow J regarded it as of particular significance that the Council had –

“a significant and special measure of control over the safety from fire of persons and property in [that] street. Such a situation of control is indicative of a duty of care.[85] The Shire had statutory powers, exercisable from time to time, to pursue the prevention of fire at [the premises]. This statutory enablement of the Shire ‘facilitate[d] the existence of a common law duty of care,’[86] but the touchstone of what I would hold to be its duty was the Shire’s measure of control of the situation, including its knowledge, not shared by [the plaintiffs], that, if the situation were not remedied, the possibility of fire was great and damage to the whole row of shops might ensue.”[87]

[85]His Honour referred to Howard v Jarvis (1958) 98 CLR 177 at 183; Parramatta City Council v Lutz 91988) 12 NSWLR 293 at 328; Hawkins v Clayton (1988) 164 CLR 539 at 553; Bennett v Minister of Community Welfare (1992) 176 CLR 408 at 427; Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 at 556-557; Hill v Van Erp (1997) 188 CLR 159 at 198-199, 234.

[86]His Honour referred to Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 460.

[87]192 CLR 330 at 389 [168] (emphasis added).

McHugh J, for his part, listed first among the factors pointing to the existence of a duty of care –

“... the extensive powers of the Council [and] its entry into the field of inspection on this occasion”.[88]

[88]At 372 [115].

The significance of the observations in Heyman and Pyrenees to which we have referred is not that the Taitapanuis sought to equate Mellis with a public authority in arguing that he owed them a duty of care, albeit that he was an employee of Moorabool, and albeit that Moorabool might itself have assumed the task – though acting through Mellis. The significance of the observations is simply that in some cases the common law discerns in one or more statutes the foundation for the erection of a cause of action.

The Statutory Scheme

We have said that we regard the statutory scheme as being of central importance in the resolution of this appeal. So also, the submissions of the parties focussed, both explicitly and implicitly, upon aspects of the scheme. In order that the submissions of the parties, and our reasoning, can be better understood, we go immediately to the Act and the Regulations.

In his Second Reading Speech, the Minister for Planning said that what was to become the Act “reform[ed] Victoria’s system of building standards regulation.” It is desirable to set out some of what the Minister said. For, as will be seen, it reflected the reality of the legislation as ultimately enacted. Thus:

·“The major reforms are in the areas of liability, the provision of a privatised option for building approval and of a one-stop shop approach to dispute resolution.”[89]
·“The Bill introduces the option for building permits to be issued by private surveyors, which will expedite the issuing of building permits.”[90]
·“When the Bill becomes law, builders will be able to choose to engage a private building surveyor to carry out the building permit, inspection and occupancy permit functions and responsibilities or, where available, they may choose to use the system provided by local councils.”[91]
·“The private building surveyor will be required to work in a professional and impartial manner. His or her conduct will be regulated by the scrutiny of the Building Control Commission, and the proposed legislation includes significant penalties. Building surveyors whose work falls short of standards required can be deregistered or fined. Those formal powers will be complemented by the peer group scrutiny of other builders and building surveyors, and the scrutiny of the insurer. Without a good professional record and an acceptable standard of professional practice, insurers will not maintain the insurance cover required by a building surveyor on an ongoing basis.”[92]
·“The Bill introduces a more vigilant approach to the insurance aspects of approval practices than currently exists. All building surveyors will be required to carry compulsory insurance cover as a prerequisite to practising.”[93]
·“All building practitioners will be required to carry professional indemnity cover to financially guarantee their professional obligations, except in the case of residential builders who already provide the consumer with an indemnity under the Housing Guarantee Fund Limited.”[94]
·“No defendant will be liable for more than his individual apportionment. This means that architects, engineers, local government officers and building surveyors will not have to assume liability for the mistakes of other defendants.”[95]
·“The Building Bill defines a clear starting date – the date of issue of an occupancy permit – and a clear conclusion date of 10 years from the date of issue. This will remove the existing ambiguity surrounding the time during which the building owner retains the right to issue legal proceedings. This will provide property owners with additional protection in terms of years beyond the very short number of years that now exists.”[96]
·“The 10-year cap applies to property damage resulting from defects in the design, construction approval and inspection of buildings. It does not, however, extend to claims for personal injury or death which may result from the damage.”[97]

[89]Hansard 11 November 1993, p 1689.

[90]ibid, p 1690.

[91]ibid, p 1690.

[92]ibid, p 1690 – 1.

[93]ibid, p 1691.

[94]ibid, p 1691.

[95]ibid, p 1691.

[96]ibid, p 1692.

[97]ibid, p 1692.

We turn to the Act. By s.1, its main purpose –

. . . is to provide for the regulation of building and building standards”.

We next refer to s.4, which prescribes the objects of the Act, and note particularly the following:
“(a)to establish, maintain and improve standards for the construction and maintenance of buildings;
(b)to facilitate –
(i)the adoption and efficient application of national uniform building standards;
and
(ii)the accreditation of building products, construction methods, building designs, building components and building systems;

(c)to enhance the amenity of buildings and to protect the safety and health of people who use buildings and places of public entertainment;
---
(e)to provide an efficient and effective system for issuing building and occupancy permits and administering and enforcing relating building and safety matters and resolving building disputes;
(f)to regulate building practitioners and plumbers.”

Consistently with declared objects of the Act, Part 2 is devoted to Building Standards. We mention particularly the regulation–making power conferred by s.7(1)(a)(b), 2(a)(b), (3) and (4), the enabling, by s. 9(1), for incorporation by reference, and provision for and the effect of accreditation of certain building products, construction methods, designs, components or systems – see sections 14 and 15. Note also Schedule 1 to the Act, referred to in s.7, and in particular items (2) and (4) in Part 1 thereof. Those items, in respect of which power to make regulations is conferred, are –

“2. Form and contents of plans and specifications for building work.
4. The construction of buildings.”

The Regulation–making power was exercised. We will refer to the regulations a little later.

Pausing for a moment, the Act reveals a clear intent that buildings[98] should be well and safely constructed. That takes us to the provisions which deal with building permits; and to the critical role of building surveyors in that connection.
[98]Defined by s.3(1) of the Act in broad language.

Section 16(1) provides, in part, that –

“A person must not carry out building work unless a building permit in respect of the work has been issued and is in force under this Act …”

“Building work” is widely defined in s.3(1).

Section 17 relevantly says this:

“An application for a building permit may be made to a municipal building surveyor or to a private building surveyor appointed under Part 6 –
(a) by or on behalf of the owner of the building or the owner of the land, in or on which the building work is to be carried out.”

We will return to the terms “municipal building surveyor”, and “private building surveyor”. It is sufficient for present purposes to say that one or the other, in the particular case, becomes the “relevant building surveyor”.[99]
[99]That term is defined by s.3(1). See particularly paragraphs (a) and (b).

By s.18, Schedule 2 is made applicable to permit applications. By clause 1 –

“An application must –
(a) contain the prescribed information; and
(b)contain any matters, and be accompanied by any documents, prescribed for the purposes of this clause.”

By clause 2(1) –
“The relevant building surveyor may require an applicant to provide additional information or documents or to amend the application before the relevant building surveyor deals with or deals further with the application.”

Note also the obligations of consultation with “reporting authorities” in certain cases, and of consideration of any report which such an authority supplies.

The Regulations, often amended and recently revoked and replaced by the Building (Interim) Regulations 2005,[100] did prescribe the form of application for a building permit; and as well prescribe the information which must be provided. Thus –
[100]SR 51/2005.

“2.1     Information to accompany applications
(1)       An application for a building permit must –
(a)       be in accordance with Form 1;
(b)contain sufficient information to show that the   building work would comply with these   Regulations; and

(c) comply with the relevant provisions of this Part.

(2)       An application for a building permit to construct a   building must be accompanied by at least 3 copies of the                following documents and any additional copies of those                 documents that the relevant building surveyor   reasonably requires –
(a)       drawings showing the plan at each floor level,   elevations, sections, dimensions, the sizes and   locations of structural members to a scale of not   less than 1:100, together with any details that are   necessary to show compliance to a scale of not less   than 1:20, or other approved scales; and
(b)      specifications describing materials and methods to   be used in the construction; and
(c)       allotment plans to a scale of not less than 1:500 or   other approved scale showing –
(i)       the boundaries and dimensions of the   allotment and any relevant easements; and
(ii)      the distance to the nearest intersecting   street; and
(iii)     the position and dimensions of the   proposed building and its relationship to –
(A)      the boundaries of the allotment; and
(B)      any existing building on the   allotment; and
(C)      any part of a building on an   adjoining allotment where necessary   to show compliance with these   Regulations; and

(iv)     a statement of the use or intended use of all   buildings shown on the allotment plan; and
(v)      the levels of the allotment, the floors of the   building, street drainage channel and   stormwater drain; and
(vi)     the layout of drains to the point of discharge       on the allotment together with details   necessary to show compliance with these   Regulations; and

(d) computations or reports necessary to demonstrate that the building would, if constructed in accordance with the computations and reports, comply with these Regulations.”

By regulation 2.1(3) in its then form the relevant building surveyor could require additional information. Thus –

“(3) Without limiting any of his or her powers under the Act, the relevant building surveyor may also require the following additional information to be submitted in relation to an application other than for demolition or removal of a building including –
(a) details of measures for the protection of the public under regulation 5.3; and
(b) documentary evidence to support the use of a material, form of construction or design in a form referred to in Clause A2.2 of the BCA.”

We next refer to s.19 of the Act. The surveyor must decide an application for a building permit by –

·     Issuing the permit; or
·     Issuing the permit with conditions; or
·     Refusing the permit.

If a permit is refused, then the building work – by operation of s.16 – must not be carried out. Note also that, if an application is refused, the surveyor must give reasons.

By s.24(1), subject to presently unimportant special provisions, the surveyor –

“ … must not issue a building permit unless he or she is satisfied that –
(a)       the building work and the building permit will comply                   with this Act and the building regulations; and
(b)      any consent of a reporting authority required under this                 Act or the regulations or under any other Act or   regulations is obtained or deemed to have been obtained                   in accordance with Schedule 2; and
(c)       any relevant planning permit or other prescribed   approval has been obtained; and
(d)      the building permit will be consistent with that planning                permit or other prescribed approval.”

If a permit is issued, then by s.30(1) the surveyor must give the “relevant council”[101] a copy of that permit and any plans and other documents lodged with the application. By s.31(1)(2), a council must keep a permits register, and must make it available for inspection by members of the public. By s.32 a council must keep all documents given to it for the prescribed period – which by Regulation 2.7 was most often not less than 10 years from the date of issue of the occupancy permit.
[101]By s.3(1), “the council of the municipal district in which the building or land is situated”. Here, Surf Coast.

A form of building permit was prescribed by Regulation 2.6(1) and Form 1 of the Regulations.

Pausing again, sections 16, 18, 19, 24, 31 and 32 of the Act, and the interrelated regulations to which we have referred, show the importance which the Act attaches to the issue of a building permit, and the critical importance of the role of the surveyor in that connection. Quite apart from the surveyor’s role in inspecting buildings which are under construction – or which more later – the surveyor must not issue a permit unless he or she is satisfied, inter alia, that the building work will comply with the Act and the Regulations – into the latter of which is incorporated[102] the Building Code of Australia. No doubt it is with that responsibility in mind that the regulations prescribe, as we have said, the documents which must be provided with an application for a permit; and which empower the surveyor to require additional information. A permit, when granted under the hand of the surveyor, is a written certification which both authorises building work and declares that the building work as described in the application will comply with the Act and the Regulations.
[102]Subject to a little modification.

In the present case, the permit should never have been issued. Mellis, as the Tribunal found, failed his basic statutory function “to the extent of gross carelessness and incompetence.” He issued the permit when the material provided by the application was, as he must have known, much lacking. Because he issued the permit in those circumstances, the critical design flaw – which must have required refusal of the permit – went unrecognised.

A permit, when issued, does not declare a situation only to the applicant for the permit, but intendedly to certain other persons also. That can be seen from the requirement that the relevant council maintain an accessible permits register. It can also be seen, in a related and important way, from consideration of s.32 of the Sale of Land Act 1962.

The last-mentioned section has a number of aspects. Overall, the material which must be supplied will give a prospective purchaser a very clear idea of just what he or she will be acquiring, the better to equip that person to decide whether or not to enter into a purchase contract.

The importance which the legislature attaches to the provision of full and accurate information to a prospective purchaser is underlined by the following aspects of s. 32.

· Sub-sections (5)[103] and (6).

· Sub-section (8).

· The requirement that the vendor sign the statements required by sub-sections (1) and (1A).

[103]Though see sub-s.7.

Sub-section (1A) was inserted into the Sale of Land Act by the House Contracts Guarantee Act 1987.[104] The sub-section was amended by the Building Act 1993[105] and substituted by Act No. 34/1997. It was, then, in its pre-substituted form at the relevant time, and read as follows:

“A vendor under a contract for the sale of land on which there is a residence must give to the purchaser before the purchaser signs the contract a statement signed by the vendor giving particulars of any building permit under the Building Act 1993 in the preceding seven years in relation to a building on the land.”

[104]Act No 44/1987.

[105]Section 264, Schedule 5 item 19.

Three points should be noted. First, the obligation imposed by sub-s.(1A) was to provide a statement. There is no reason to suppose that sub-sections (5), (6) and (8) did not apply to such a statement. Second, the obligation was not to set out a copy of the permit – though we see no reason why that should not have been done. It was to provide particulars of any permit issued. Those particulars might themselves identify the building work to which the permit related. But if they did not do so, they should certainly provide information sufficient to enable the purchaser to search the permit register of the relevant council. Third, the structure of the Building Act, to which we have referred, means that the issue of a permit referable to a particular building on the land would convey to the prospective purchaser and his or her solicitor (if a solicitor was engaged) an assurance that the person issuing the permit – that is, the surveyor – had been satisfied that the building work the subject of the application for a permit would comply with the Act and the Regulations. Taking that as a starting point, the prospective purchaser could properly assume any building erected in consequence of the grant of the permit had in fact been erected in accordance with the Act and the Regulations, provided only that the building work had been performed in accordance with the plans and specifications submitted with the permit application.

· In deciding whether the Taitapanuis had established that they were owed a relevant duty of care, the question whether Mellis bore any liability to the original owner was of critical significance. This had not been (sufficiently) addressed by the judge below. Although it was accepted that Mellis had owed the original owners a duty at common law and/or in contract, any liability would have been impacted upon by the evident contributory negligence of Watson and/or Constructions.

· The better view was that there could be no relevant duty of care unless there was both reliance and assumption of responsibility. By reliance was meant actual reliance, rather than known or general reliance.

· Insufficient weight had been accorded to The Council of theShire of Sutherland v Heyman[121]. The facts in the instant case were similar. The bases for distinguishing Heyman adopted by the Tribunal and the learned judge did not mean that the decision was unimportant.
[121](1985) 157 CLR 424.

· Certain provisions of the Domestic Building Contracts Act 1995, s. 137C of the Act, and the insurance regime prescribed by the Act told against imposition of a duty of care upon Mellis in favour of the Taitapanuis; whilst the fact that the Act, combined with a Ministerial Order, required Mellis to hold professional indemnity cover could not be extrapolated to a conclusion that a duty of care arose in favour of the Taitapanuis.

· The learned judge had not heeded the criticism of Bryan v Maloney[122] by Brooking JA in Zumpano & Anor v Montagnese & Anor.[123]

· The English certification case of Reeman & Anor v Department of Transport & Ors[124], though considered in the context of the Caparo Industries[125] test, and in the context that Murphy v Brentwood District Council[126] was good law, did not assist the Taitapanuis, although that had been a stronger case for the purchasers, who had relied upon the certification of the Marine Surveyor.

· Other English certification cases – Marc Rich & Co Ag v Bishop Rock Marine Co Ltd[127], Perrett v Collins & Ors[128] and Philcox v Civil Aviation Authority. [129] were perhaps distinguishable from the present case as involving physical damage or personal injury rather than pure economic loss.

[122](1995) 182 CLR 609.

[123][1997] 2 VR 525.

[124][1997] 2 Lloyd’s Rep. 648.

[125]Caparo Industries Plc v Dickman [1990] 2 AC 605.

[126][1991] 1 AC 398.

[127][1996] AC 211.

[128][1998] 2 Lloyd’s Rep. 255.

[129]The Times, 8 June 1995, Court of Appeal (Civil Division) Transcript No 821 of 1995.

The Taitapanuis

Counsel for the Taitapanuis submitted that –

· This was an established category of case involving the assumption of the performance of statutory functions or services requiring particular expertise. The provider owed a duty not only to the immediate recipient, but to others whose economic interests were likely to be affected by negligent performance of those functions or services.

· Mellis did owe duties to the original owners, concurrently in contract and in tort. By s.17 of the Act, a private surveyor can only be appointed by or on behalf of the owner.

· Bryan v Maloney was considered in detail in Woolcock Street Investments Pty Ltd v CDG Pty Ltd[130]. Although it had been elsewhere subjected to criticism, it was not there overruled. As explained in Woolcock, Bryan remains good law. The present case fell within the analysis of Bryan in Woolcock. In that context, Mellis owed duties to the original owners in contract and in tort.
[130](2004) 216 CLR 515, at 526-529, [10] – [18].

· This was not a case of failure by a municipal authority to exercise an available discretion in a particular way, a failure to act when it might have decided to act. Neither was it a case involving the conduct of a municipal building surveyor acting in that capacity.

· This was not a case where there was no assumption of responsibility to provide specific services.

· Nor again was it a case where the imposition of a duty would be inconsistent with the proper discharge of professional or statutory responsibilities. Rather, it was the converse case.

· Even if Mellis had owed no duties to the original owners, nonetheless he was under a relevant duty vis a vis the Taitapanuis. In any event, a factual basis for the submission that Mellis owed no duty to the original owners was absent. All other matters apart, the Tribunal had found against the appellants on the issue of the utility of pre-purchase inspection.

· The analysis of the learned judge in the Trial Division was correct, albeit that it had not been strictly necessary for him to consider “salient features” and “vulnerability” discretely; for essentially, as his Honour had concluded, the circumstances fell within the confines of Bryan v Maloney.

· Mellis’ liability was founded upon positive acts done negligently – the issue of a building permit allowing the construction of defectively designed premises, the issue of a certificate of occupancy; and upon negligent omissions – the failure by Mellis to observe any deficiencies during statutory inspections.

· Specific reliance by a subsequent owner is not an element which is essential to the erection of a duty of care in a case such as the present.

· So far as it might be relevant, the evidence did not suggest that pre-purchase inspection would have discovered the problem with the footings. Indeed, the significance of that problem was not recognized until the house was inspected by a structural engineer.

· The fact that the builder might be bound by statutory warranties, which could be insured against, did not enable the surveyor to successfully deny the existence of a pertinent duty of care. The requirement that surveyors carry professional liability insurance, and the provision for proportionate responsibility for claims, were consistent with a duty of care being imposed on the surveyor. Bear in mind also the fact that, although the amount of a builder’s liability is not confined, a limit may be set on the quantum of insurance cover – as here was the case.

· This was not a case where indeterminacy of liability told against the erection of a duty of care.

· Reeman involved a different statutory regime. There was no suggestion in that case that the surveyor owed duties to the original owners arising from the terms of an appointment. Indeed, there was nothing to suggest that the surveyor was appointed by the owners rather than was nominated by the Department of Trade to satisfy its functions. Further, that regime involved certification of the performance of duties by others; where here, the certification pertained to the performance of duties by the surveyor. Further still, the Court of Appeal in Reeman was bound by Murphy v Brentwood, which the High Court expressly declined to follow in Bryan v Maloney.

Home Owners Warranty

Counsel filed substantial written submissions, but only addressed a few matters orally, and by a later memorandum. He submitted, inter alia, that –

· Mellis was acting as a private building surveyor at the critical time; and that, by the Act, if a municipality or a municipal building inspector carries out functions under the Act outside the municipal district, then the same are to be properly remunerated.

· In this case, by contrast with Heyman and Woolcock, Mellis was unable to limit the scope of the duty of care which he owed the owners at the time of engagement. The nature and scope of his duties was obliged by statute. No question could arise of disconformity between the duty of care[131] arising in favour of the original owners and the duty arising in favour of the subsequent purchasers. That told against the necessity of investigating whether some and what relevant duty had been owed by Mellis to the original owners – not that the result of an enquiry about that matter would alter the outcome of this particular litigation.
[131]Pertaining to pure economic less.

· This was a case in which it was particularly important for Mellis to abide his statutory obligations. There was no prospect that the owners would call attention to any faulty design or work on the builder’s part. In such a case there was greater reason to hold that Mellis owed a duty to subsequent purchasers.

· A series of factors told in favour of the erection of a duty of care in favour of the Taitapanuis:

¨ The role of Mellis as “gatekeeper”, the person with sole authority to determine whether or not a building permit would be issued, and so whether a subsequent purchaser would suffer loss by reason of defective design.

¨ The absence of any unreasonable interference with the autonomy of individuals.

¨ Mellis’ inevitable knowledge of the risk attendant on neglect of statutory duty.

¨ Mellis’ assumption of responsibility – that is, by taking on the tasks of certification and inspection.

¨ General, rather than actual, reliance.

¨ The Taitapanuis’ vulnerability to harm – the Tribunal having effectively found against the appellants on the facts.

¨ The absence of any element of seeking to outflank the law of contract.

¨ The presence of a measurable standard of care – deriving from the nature of the statutory obligation.

¨ Absence of indeterminacy – in part by statutory imposition of a maximum limitation period for all building actions.

¨ The existence of a builder’s warranty regime – which should be seen as only a facet of a broader scheme which requires all building practitioners to be registered and insured.

· Reeman was distinguishable for the additional reason that the purchaser acquired the fishing vessel having a motive for commercial project, and investment. But here, the Taitapanuis were unsophisticated purchasers of a home in which to reside.

Resolution of Appeal

It is convenient to mention three matters at the outset.

First, one indispensable requirement for the erection of a duty of care in a claim for pure economic loss is reasonable foreseeability that damage of that kind might be suffered by the claimant in the event of the defendant’s want of reasonable care. There is no question but that in this case infliction of damage of that kind upon a subsequent purchaser should reasonably have been foreseen by Mellis. The contrary was not argued.

Second, Mellis’ want of reasonable care, if he owed a relevant duty to the Taitapanuis, was multi-faceted, depending upon the precise formulation of that duty. The breach, on a narrow conception of the duty, consisted of issuing the building permit despite gross inadequacies in the material provided in support of the application, and despite such material as was provided at least implying a mismatch of the footing systems and the external wall material. The permit, once issued, both authorised the building work and implied that such work would comply with the Act, the Registrations and the Code as it was imported. Depending upon the precise formulation of the duty, Mellis’ further want of reasonable care may have included his failure to detect many defects in the building work as it was effected – some of which defects, it seems very clear, were such as would be, and were, hidden as construction proceeded. The same may be said of his issuing the occupancy permit, insofar as such a permit necessarily implied not only the antecedent issue of a building permit but also the making of mandatory inspections.

According to the Tribunal’s findings, Mellis’ want of reasonable care was, in effect, gross. But nothing turns on that. This was not a case in which the Taitapanuis sought to establish that Mellis’ conduct had been anything more than negligent.

Third, the submissions made by the parties considerably focussed upon the decision of the High Court in Bryan v Maloney, analysis of that decision in Woolcock Street Investments, and earlier criticism in Zumpano v Montagnese. But, with respect, we do not consider that Bryan v Maloney, or Woolcock Street, provide the basis for resolving this appeal. Mellis was neither the designer nor builder of the premises. To say that he was a short step removed from the designer or builder, and that, by resort to cautious development or analogy, a duty of care could be discerned to arise in favour of the Taitapanuis, fails in our opinion to focus upon the essential features of the role which Mellis assumed.

In our opinion, it is of critical importance that Mellis was a person who voluntarily agreed to perform important statutory functions and duties bearing upon the soundness of the premises which were to be constructed. The performance of those functions and duties could readily be seen to impact not only upon the owners of the premises at the time of their construction but also upon any subsequent owners in the seven year period after the permit was issued. Further, for the performance of such functions and duties, Mellis’ employer, at least, was remunerated.

Once Mellis assumed the role of building inspector with respect to the particular premises, no discretion existed whether or not to do certain things. His statutory obligation was to act, and in some circumstances to refuse to act. Contrast the circumstances in Heyman. So, Mellis was obliged to consider an application for a building permit and, if the papers were in order, to issue such a permit. But if the material was not in order, he was obliged not to issue a permit. If once he issued a permit, certain inspections were mandated. When premises were built, he was obliged (in a case such as the present) either to issue or refuse to issue an occupancy permit.

Further, it should be noted that the work which Mellis was obliged to perform, once he assumed the role of building inspector in respect of the particular premises, gave effective authority – if a building permit was issued, inspections were satisfactory and an occupancy permit was issued – for the building and occupation of a home. It need hardly be said that for most people the purchase of a home is a major personal decision, that the structural soundness of the home is of first importance, and that homes are often enough the subject of resale.

What we have just said leads on to the point that a vital step in what Mellis was obliged to do – that is, issue or refuse to issue a building permit – has statutory implications which extend beyond the owners at the time when such a permit issues. A certificate, once issued, serves two purposes. First, it authorises construction of premises in accordance with plans and specifications submitted to the surveyor. It intendedly reflects the surveyor’s skilled appraisal of material provided, and his conclusion that such material means that the proposed building work (and the permit) will comply with the Act and the Regulations (and thus the Code, so far as the same is incorporated). This is of particular importance for, as the Tribunal recognised, structural deficiencies may well be concealed when building work has advanced beyond its early stages.

Second, the requirement that particulars of any building permit must be supplied with a s.32 Sale of Land Act statement, for a period of 7 years after issue of such permit, shows that the statutory scheme is concerned to provide a prospective purchaser in that 7 year period with an assurance that the authorised building work to which the permit relates – work some of which is likely to be hidden from a purchaser’s view – was work which was not in breach of the Act or Regulations. We have already explained why any competent solicitor would gain the assurance of which we have spoken from a perusal of the permit particulars, or from inspection of a copy of the building permit in the council register; or alternatively by perusing a copy of the permit or the occupancy certificate in the event that the same is appended to the s.32 statement; and the correlative assurance of the purchaser.

Where a surveyor voluntarily assumes particular responsibilities under the Act, to the financial advantage at least of his employer, the statutory regime seeks to give comfort to a prospective purchaser in the manner which we have just described. It appears to us that it would be anomalous if the issue of a building permit under the statutory scheme, its issue being conveyed to a prospective purchaser, did not give rise to a duty of care of the kind here contended for. To conclude otherwise would tend to deny that there was any significance, so far as a prospective purchaser is concerned, between the assurance properly conveyed by a soundly-issued certificate, and the assurance improperly conveyed by a negligently-issued certificate. The failure to provide particulars of a building permit – be it good or bad – would call s.32(5)(b) of the Sale of Land Act into play. But it is a moot point whether the provision of particulars of a building permit which had been issued in negligent breach of the surveyor’s statutory obligations could call s. 32(5)(a) into play.

The duty of care should be described as a duty to exercise reasonable care in the giving of a building permit in respect of building work the subject of an application for the permit. There is no occasion for us to consider whether any duty of care rested on Mellis in connection with any subsequent performance by him of his duties as surveyor in respect of the building work the subject of the permit.

In this case, the contract note of January 1999 - which, incidentally, identified the Taitapanuis’ solicitors - contained an acknowledgment of receipt of a s.32 statement. That statement, dated 2 January, said that “attached are particulars of any building permit given in the last seven years.” In fact, what was attached was a copy of the occupancy permit. As we have said, that permit necessarily implied the proper issue of a building permit.

Whilst we consider that the requirement imposed by S.32(1A) of the Sale of Land Act in its then form is of particular significance, set in the whole context which we have described, in leading to a conclusion that Mellis owed a relevant duty of care to the Taitapanuis, on one view it was enough, in context, that Mellis assumed and executed a duty which required him to issue or refuse to issue a building permit. That duty, once assumed and negligently executed, might authorise, as here occurred, the erection of a house affected by structural deficiencies which were not readily ascertainable by a later purchaser. At least in circumstances where there was no debate that the surveyor owed a relevant duty of care to the original owners (though subject in a contributory negligence argument to which we shall later refer), we think that a relevant duty of care, owed by Mellis to the Taitapanuis, might be discerned. But the point need not be decided.

We referred a moment ago to a contributory negligence submission advanced for the appellants. In some claims for pure economic loss it has been considered relevant whether a predecessor of the claimant was owed a duty of care akin to that being contended for by the claimant. As we approach resolution of this matter, that is, at least, not a consideration of importance. Were the matter to be resolved, however, by reference to the alternative circumstances which we have said might give rise to a duty of care in favour of the Taitapanuis, or if a Bryan v Maloney approach was available,[132] the question whether Mellis owed a relevant duty of care to the building owners as at the period of his engagement would have more obvious relevance.
[132]We do not suggest that it was.

It was not in debate that Mellis owed a relevant duty of care to the owners of the property as at the time of his engagement. Whether the duty was imposed by contract, or arose at common law, or could be cast in either way, was not said by any of the parties to be of key significance. For the practical content of the relevant duty was accepted as being the same whatever its conceptual basis.

But in this case, counsel for the appellants contended that the duties – one conceded, one contended for by the Taitapanuis – were not the same; and that this was of importance. There were two elements to the submission. First, that any duty owed by Mellis to the Watsons was impacted upon by their contributory negligence. Second, that any duty owed by Mellis to the Taitapanuis was impacted upon by their contributory negligence in failing to obtain a pre-purchase inspection of the premises which would have revealed their structural deficiencies. The second element also bore upon the question whether the Taitapanuis were vulnerable, as that word is understood in the context of claims in tort for pure economic loss.

In our opinion, the appellants’ submissions should not be accepted. The content of the duty of care owed by Mellis to the Watsons was no different even if it be assumed that he would have been able to successfully allege contributory negligence against them. In the latter connection, we add, there would need to have been careful consideration of the distinction between Watson and Constructions, albeit that the latter was Watson’s corporate alter ego.

Then, as to the Taitapanuis, the appellants face the problem that the Tribunal did not find that a pre-purchase inspection, even if the same could have been conveniently arranged, was likely to have revealed the critical structural deficiencies.[133] The Tribunal said this, in the context of a discussion about vulnerability:

“… it is apparent that subsequent owners are more vulnerable. The elements of the building work that cause the most substantial and lasting damage if defective, are the structural elements such as foundation material, footings, framing, etc; all of these elements are covered once built and are not available for inspection by subsequent purchasers without intrusive and expensive investigation. This is the reason for the mandatory statutory inspections, except for the final inspection, it is [that] all the building elements vital to the structure’s stability . . . will be covered once built and unavailable for inspection. Therefore, in relation to the existence of structural defects, I consider that a subsequent purchaser is in a more vulnerable position that the building owner.”

[133]There had been conflicting evidence about the matters by witnesses called for the Taitapanuis; and neither Moorabool nor Mellis called witnesses to address the point.

There was no appeal ground which contended that there was no evidence to support those findings. We have already noted the nature of the appeal authorised by s.148(1) of the Victorian Civil and Administrative Tribunal Act 1998. Accepting their correctness, it could not have been successfully contended[134] that a finding of contributory negligence should be made based upon the Taitapanuis’ failure to arrange such an inspection.
[134]The allegation seems to have been raised by paragraph 47 of the appellants’ defence.

Thus far we have identified the main features of the legislation, the circumstances of the case, and the relationship of the parties, which have cumulatively led us to conclude that Mellis owed a relevant duty of care to the Taitapanuis. We have rejected a particular argument advanced for the appellants. A number of other considerations have contributed to our conclusion. We must now mention them.

First, Mellis voluntarily assumed a powerful position. His negligent performance of duties confided in him in virtue of his holding that position detrimentally affected the Taitapanuis. By taking on the task of certification, Mellis relevantly assumed responsibility. He must be taken to have known the significance of issuing a building permit – both as an authority to construct, and as a document the existence of which must be disclosed to a later prospective purchaser.

Second, the Taitapanuis were vulnerable, in the sense described by Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street[135].
[135]At 530-531, [23].

Third, for reasons already discussed in the context of the appellants’ contributory negligence argument vis a vis the Watsons, the practical content of the duty of care owed by Mellis to the Watsons and to the Taitapanuis was no different. In each instance, the nature and scope of the duty was discernible from Mellis’ statutory obligations.

Fourth, Mellis could not have but been aware of the risk of economic harm being suffered by a later purchaser in the event that he neglected his statutory obligations. Such awareness, arguably, was likely to have been greater than usual because he must have known that the Watsons – Watson being the moving spirit – were unlikely to be interested in anything but obtaining a building permit in accordance with the application material, and then in the building work proceeding smoothly through inspection to the point where an occupancy permit was issued.

Fifth, to impose a relevant duty of care upon Mellis did not impair his reasonable freedom of action. It was, to the contrary, compatible with him acting consonantly with the statutory obligations which he voluntarily undertook.

Sixth, to impose a relevant duty upon Mellis carried no risk of indeterminacy. The duty could only run in favour of a small class of readily identifiable beneficiaries, and that for a short time. Note also that, as the Act then stood, the surveyor’s liability could not exceed his or her proportionate responsibility as between those who were liable to a claimant.

It is enough, in this case, to define the class as persons purchasing the property in the seven year period stipulated by s.32(1A) of the Sale of Land Act in its pre-substituted form. There is no occasion to consider the situation of a person buying in the further period during which, by s.134 of the Act, a building action may be brought.

Seventh, there was an unbroken chain of causation between Mellis’ want of reasonable care and the economic loss suffered by the Taitapanuis. Upon the Tribunal’s finding, for reasons explained, that was not gainsaid by the asserted opportunity for the Taitapanuis to have a pre-purchase inspection conducted. Nor was it gainsaid by the circumstance that “particulars of the building permit” – in fact a copy of the occupancy permit – were supplied with the Section 32 statement. Indeed, that circumstance reinforced the continuity of the causal chain.

Eighth, it is the fact that the Taitapanuis did not assert that they had consciously relied upon anything done by Mellis as being causative of their loss. But they did entrust the purchase to solicitors whom they perceived to be highly respected. Those solicitors were supplied, broadly in conformity with s.32(1A) of the Sale of Land Act, with material bearing upon certification. In the absence of anything suggesting the contrary, it must be inferred that, having been engaged, the solicitors performed their task competently. The relevant material was not such as might have occasioned concern on their part. The fact that no solicitor gave evidence is in our opinion not to the point. We have already pointed out the way in which the solicitor’s assurance should be taken to have affected the purchasers.

Ninth, if that not be a correct analysis, we do not understand it to be the law that absence of actual reliance upon conduct of a defendant necessarily requires the failure of a claim for pure economic loss; and in this case the multiplicity of considerations standing in favour of the imposition of a duty of care suggests that, if there was absence of actual reliance, it should not be decisive against such imposition. Neither should an assumed absence of reliance be decisive against causation of loss. For the Taitapanuis’ loss was, in truth, sealed by the issue of the building permit and the improbability that pre-purchase inspection would have revealed the essential structural deficiencies.

Tenth, it was submitted for the appellants that the statutory scheme provided reason why the surveyor’s duty did not extend to the Taitapanuis. The submission had these elements:

· Warranties statutorily implied by the Domestic Building Contracts Act 1995[136] run to the benefit of a subsequent owner[137]. They are akin to the warranties imposed upon an owner builder as vendor by s.137C(1)(a)-(c) of the Act, which by Sub-s(3) also run in favour of a successor in title to the purchaser.

· Ministerial Order No. S 52 of 1996 obliged all building practitioners to have professional indemnity insurance cover for commercial and domestic building works. Order No. S 25 of 1996 required domestic builders and owner builders to carry insurance for defective and incomplete work, including work in breach of warranties implied under s.8 of the Domestic Building Contracts Act.

· The scheme of the relevant legislation should be understood to mean that the legislature made a deliberate choice that only in the case of a builder or owner builder was a liability imposed which was to run with the land. It would be judicial legislation to impose a liability upon some other class of building practitioners in respect of loss sustained by a distant owner.

[136]See s.8.

[137]See s.9.

We do not accept that submission. The relevant provisions of the Domestic Building Contracts Act and the Act imply commonplace warranties into contracts to which a builder is a party. The warranties are such as particularly relate to construction work carried out by a builder. It is true that the particular warranties run in favour of successors in title. But it is another thing altogether to conclude that the Parliament objectively intended to displace the common law as it should otherwise apply in respect of the quite different conduct of a building practitioner of another class.

Eleventh, in connection with the issue just considered, the requirement that a building surveyor carry professional indemnity insurance is not without all relevance. The legislature can be said to have had in mind the prospect of a surveyor being sued for alleged defective performance, at least, of his or her duties of certification. We think that it would be illogical to conclude that Parliament had in mind a possible claim by the person who owned the property during the period of the surveyor’s engagement, but not a claim by a subsequent purchaser within the s.32(1A) period.

We turn finally to consider a small number of English cases concerning certification, to which reference was made in argument and in later written submissions after the question of their possible relevance had been raised in argument. We consider, in the event, that they provide no assistance to the appellants’ case. We should say why that is so.

In Marc Rich,[138] the leading opinion was given by Lord Steyn.[139] His Lordship’s conclusion that a classification society did not owe a duty of care to cargo owners in respect of physical damage to the cargo arising from the society’s pronouncement that a vessel on which the cargo was carried was safe to continue on its voyage after certain repairs had been effected depended on a Caparo analysis. There was reasonable foreseeability of economic loss, and his Lordship was prepared to assume sufficient proximity. But it would not be fair, just, or reasonable to impose a duty. His Lordship said this -
“By way of summary, I look at the matter from the point of view of the three parties concerned. I conclude that the recognition of a duty would be unfair, unjust and unreasonable as against the shipowners who would ultimately have to bear the cost of holding classification societies liable, such consequence being at variance with the bargain between shipowners and cargo owners based on an internationally agreed contractual structure. It would also be unfair, unjust and unreasonable towards classification societies, notably because they act for the collective welfare and unlike shipowners they would not have the benefit of any limitation provisions. Looking at the matter from the point of view of cargo owners, the existing system provides them with the protection of the Hague Rules or Hague-Visby Rules. But that protection is limited under such Rules and by tonnage limitation provisions. Under the existing system any shortfall is readily insurable. In my judgment the lesser injustice is done by not recognising a duty of care.“[140]
[138][1996] AC 211.
[139]Lords Keith, Jauncey and Browne–Wilkinson agreed in his Lordship’s opinion. Lord Lloyd dissented.
[140]At p. 242.
His Lordship further concluded, in effect, that the circumstances fell outside “even the most expansive view of the doctrine of voluntary assumption of responsibility,” and that the cargo owners had not even been aware of the society’s examination of the ship, let alone relied upon any pronouncement that the society’s representative had made.

The factual differences in the present case, ignoring the difference in approach dictated by Caparo, are stark. Almost every matter which his Lordship considered important was factually the converse in the present case.

Reeman[141] also involved consideration of factual circumstances far removed from the present. The plaintiffs purchased a fishing boat in respect of which there was a current certificate of compliance with statutory requirements that were designed to ensure seaworthiness. The certificate which was then extant, issued by the Department of Transport, was founded upon an inspection carried out many years earlier, and incorrect calculations then made and reiterated from time to time in the intervening period. Only after the purchasers had purchased the vessel was it re-inspected, and was it found that it did not meet minimum requirements. The purchasers suffered financial disaster.
[141][1997] 2 Lloyd’s Rep. 648.

In holding, contrary to the trial Judge, that the Department had owed no duty to the purchasers, the Court of Appeal applied a Caparo test. That apart, Phillips LJ, who gave the leading judgment, identified the following matters as being of importance. First, the statutory duties related to the regulation of the performance of obligations of owners of property designed to be used for commercial purposes that involved potential risks to third parties[142]. Second, Murphy v Brentwood District Council[143], Philcox v Civil Aviation Authority[144] and Marc Rich raised serious questions whether the Department would owe any duty of care to Mr Reeman or his crew even in the event of their injury or death resulting from unseaworthiness of the vessel[145]. Third, aspects of the task of survey and certification involved the exercise of discretion; and there was a right of appeal against refusal of certification. It was at least arguable that no duty of care was owed to the owner of a vessel at time of survey and certification. Still less could a duty of care be owed to a person later acquiring the vessel[146]. Fourth, the statutory framework was designed to promote safety at sea. The protection of those whose commercial interests might conceivably be affected by unseaworthiness of vessels formed no part of the purpose of the legislation[147]. Fifth, such persons did not form part of a class that was capable of definition and delimitation by identifiable characteristics at the time of issue of a certificate[148] . Sixth, it was always open to persons in the position of the purchasers to take steps - such as surveying the vessel or stipulating for contractural warranties – that would provide protection[149]. Seventh, there was force to the submission that the circumstances were akin to those considered in The Morning Watch[150] and Marc Rich. Arguably, the Department could be equated with a non-profit making classification society[151].
[142]At 678.
[143][1991] 1 AC 398.
[144]The Times, June 8, 1995.
[145]At 679.
[146]At 679.
[147]At 680.
[148]At 681.
[149]At 683.
[150][1990] 1 Lloyd’s Rep 547.
[151]At 683.

The Caparo analysis and reliance upon Brentwood apart, his Lordship’s analysis shows how different were the statutory provisions and the circumstances in that case and in the present matter. To point up the differences would be only to repeat much of what we have already said.

Finally we mention, for completeness, Perrett v Collins[152]. It raised a duty of care question in the context of certification of airworthiness; and the suffering, by the immediate beneficiary of the certification, of personal injury. The Court of Appeal upheld a finding that the certifier owed a duty of care to the injured plaintiff. The Court considered Marc Rich, Reeman and Philcox; but they were very different cases, as Hobhouse LJ recognized when, having referred to the reliance of defendant’s counsel upon them, he said:

“What the…defendants seek to achieve in this case is to extend decisions upon “economic” loss to cases of personal injuries. It represents a fundamental attack upon the principle of tortious liability for negligent conduct which had caused foreseeable personal injury to others. That such a point should be considered to be even arguable shows how far some of the fundamental principles of the law of negligence have come to be eroded.”[153]

[152][1998] 2 Lloyd’s Rep 255 (CA).

[153]At 257-258.

Both Hobhouse LJ and Swinton Thomas LJ distinguished, so far as it was necessary to do so, the regulatory regime applicable in the case before them, the regulatory regime which had applied in Reeman, and the role assumed by the classification society in Marc Rich. Nothing turns upon the differences which were exposed. They only emphasise the need to carefully consider the particular facts of the particular case.

Conclusion

The appeal should be dismissed.

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[2006] VSCA 30

24 February 2006